57716 Federal Register / Vol. 71, No. 189 / Friday, September 29, 2006 / Rules and Regulations 

DEPARTMENT OF LABOR 

Office of Labor-Management 

Standards 

29 CFR Part 403 

RIN 1215–AB54 

Labor Organization Annual Financial 

Reports for Trusts in Which a Labor 

Organization Is Interested, Form T–1 

AGENCY: Office of Labor-Management 

Standards, Employment Standards 

Administration, Department of Labor. 

ACTION: Final rule. 

SUMMARY: The Department proposed to 

revise the forms used by labor 

organizations to file the annual financial 

reports required by the LaborManagement Reporting and Disclosure 

Act (‘‘LMRDA’’ or ‘‘Act’’), 29 U.S.C. 

431(b). Under the proposal, specified 

labor organizations would file annual 

reports about particular trusts to which 

they contributed money or otherwise 

provided financial assistance (Form T– 

1). This document sets forth the 

Department’s review of and response to 

comments on the proposal; this review 

was undertaken by the Department after 

the decision by the United States Court 

of Appeals for the District of Columbia 

Circuit in American Federation of Labor 

and Congress of Industrial 

Organizations v. Chao, 409 F.3d 377 

(2005). Under this rule, the Department 

will require that a labor organization 

(‘‘union’’) with total annual receipts of 

$250,000 or more file a Form T–1 for 

each trust provided that the trust is of 

the type defined by section 3(l) of the 

LMRDA (defining ‘‘trust in which a 

labor organization is interested’’) and a 

number of conditions are met: The 

union’s financial contribution to the 

trust was $10,000 or more during the 

year; the trust had $250,000 or more in 

annual receipts; and the union, acting 

either alone or with other unions, 

selects a majority of the members of the 

trust’s governing board or the union’s 

contribution to the trust, made 

independently or in combination with 

other unions, represents greater than 

50% of the trust’s revenue in the oneyear reporting period. The Department 

will provide four exceptions to the Form 

T–1 requirements, and unions will not, 

therefore, be required to file a Form T– 

1 for: A Political Action Committee 

fund, if publicly available reports on the 

fund are filed with federal or state 

agencies; a political organization for 

which reports are filed with the Internal 

Revenue Service under 26 U.S.C. 527; 

an employee benefit plan filing a 

complete and timely report under the 

Employee Retirement Income Security 

Act (‘‘ERISA’’); and a trust or trust fund 

for which an independent audit has 

been conducted, in accordance with the 

standard set forth in this final rule, if the 

audit is made publicly available. Under 

this exception the labor organization 

must submit the first page of the Form 

T–1 and a copy of the audit. 

DATES: Effective Date: This rule will be 

effective on January 1, 2007; however, 

no labor organization is required to file 

a Form T–1 until 90 days after the 

conclusion of its first fiscal year that 

begins on or after January 1, 2007. A 

Form T–1 covers a trust’s most recently 

concluded fiscal year, and a Form T–1 

is required only for trusts whose fiscal 

year begins on or after January 1, 2007. 

FOR FURTHER INFORMATION CONTACT: Kay 

H. Oshel, Director, Office of Policy, 

Reports, and Disclosure, Office of LaborManagement Standards (OLMS), U.S. 

Department of Labor, 200 Constitution 

Avenue, NW., Room N–5605, 

Washington, DC, olms-public@dol.gov, 

(202) 693–1233 (this is not a toll-free 

number). Individuals with hearing 

impairments may call 1–800–877–8339 

(TTY/TDD). 

SUPPLEMENTARY INFORMATION: The 

following is the outline of this 

discussion. 

I. Background 

A. Introduction 

B. Judicial Review of the 2003 Rule 

C. LMRDA: Reporting Provisions and Their 

Enforcement 

1. History and Summary of the LMRDA 

2. Statutory Authority 

D. The Rationale Underlying the Rule 

1. Should unions be required to report on 

section 3(l) trusts? 

2. Should some labor organizations be 

excepted from filing based on their size? 

3. Should there be an initial dollar 

threshold that a union’s financial 

contribution to a union must exceed 

before the union may be required to file 

a Form T–1? 

4. When should a union that has met the 

initial dollar threshold be required to 

report on a trust in which it is 

interested? 

5. Where multiple unions participate in a 

single trust, which unions should be 

required to file the Form LM–2? 

6. Should itemization of substantial 

receipts and disbursements of the trust 

be required and, if so, what aggregate 

dollar value should trigger itemization? 

7. Should some unions be excepted from 

filing, if the trust already files a publiclydisclosed report, such as required by 

ERISA or other federal or state law, or 

the union submits an audit of the trust’s 

finances? 

8. What if a section 3(l) trust refuses to 

provide the reporting union with the 

information required to complete the 

Form T–1? 

9. What concerns about privacy or 

sensitive information are implicated by 

requiring the disclosure of information 

about the trust and how are these 

interests balanced with the right of 

members to obtain relevant financial 

information about their union? 

10. When should the rule take effect? 

11. What assistance will the Department 

provide unions to assist them with their 

section 3(l) reporting obligation? 

II. Changes to the Form T–1 Proposal 

III. Regulatory Procedures 

A. Executive Order 12866 

B. Small Business Regulatory Enforcement 

Fairness Act 

C. Executive Order 13132: Federalism 

D. Regulatory Flexibility Act 

E. Unfunded Mandates Reform 

F. Paperwork Reduction Act 

G. Executive Order 13045 (Protection of 

Children From Environmental Health 

Risks and Safety Risks) 

H. Executive Order 13175 (Consultation 

and Coordination With Indian Tribal 

Governments) 

I. Executive Order 12630 (Governmental 

Actions and Interference With 

Constitutionally Protected Property 

Rights) 

J. Executive Order 12988 (Civil Justice 

Reform) 

K. Environmental Impact Assessment 

L. Executive Order 13211 (Actions 

Concerning Regulations That 

Significantly Affect Energy Supply, 

Distribution, or Use) 

I. Background 

A. Introduction 

In December 2002, the Department 

proposed to revise its rules establishing 

the details of the annual union financial 

reports required under section 201(b) of 

the LMRDA, 29 U.S.C. 431(b) 

(‘‘proposal’’). See 67 FR 79280 (Dec. 27, 

2002). The LMRDA requires a union to 

file an annual report reflecting its assets, 

liabilities, and cash flow during the 

reporting period. Under the 

Department’s rules, the detail of the 

reports varied depending upon the size 

of a reporting organization, as measured 

by the amount of its annual financial 

receipts. The report filed by the largest 

labor organizations, Form LM–2, 

required the greatest detail. The 

proposed rule also addressed other 

aspects of financial reporting, including 

an expansion of the obligation to report 

information on trusts in which a union 

held an interest. Such trusts are created 

for a myriad of purposes; common 

examples include training funds, 

apprenticeship programs, pension and 

welfare plans, building funds, and 

educational funds. Some of these trusts 

may be funded with employer 

contributions and jointly administered 

by trustees appointed by the unions and 

the employers. The Department 

proposed that large unions would 


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submit this trust-related information on 

a new form created for this purpose, 

known as the ‘‘Form T–1.’’

As explained in the Department’s 

proposal, the form used by labor 

organizations to report financial 

information had not changed 

significantly from its first printing 

shortly after the Act’s passage in 1959. 

67 FR 79280–81. As the form remained 

static, dramatic changes were occurring 

in the American workforce and in the 

financial operation of labor 

organizations, as the impact of 

information technology on the operation 

of organizations increased dramatically. 

Id. As noted in the proposal, unions 

have substantial financial dealings with, 

or through, trusts, funds or other 

organizations that meet the definition of 

a ‘‘trust in which a labor organization is 

interested,’’ as defined by section 3(l) of 

the LMRDA, 29 U.S.C. 402(l), such as 

joint funds administered by a union and 

an employer pursuant to a collective 

bargaining agreement, educational or 

training institutions, credit unions, 

strike funds, and redevelopment or 

investment groups. 67 FR 79284. 

Historically, however, the Department 

has required unions to report on only a 

segment of such trusts: those in which 

the ownership is wholly vested in the 

union, or its officers, employees, or 

members; which is governed or 

controlled by the officers, employees, or 

members of the union; and which is 

wholly financed by the union 

(‘‘subsidiary organizations’’ or ‘‘whollyowned trusts’’). The Department 

explained its finding that revisions were 

needed to require unions to report on 

the assets, liabilities, receipts, and 

disbursements of other trusts because 

‘‘[t]hese separate organizations pose the 

same transparency challenges as ‘‘offthe-books’’ accounting procedures in the 

corporate setting: large-scale, potentially 

unattractive financial transactions can 

be shielded from public disclosure and 

accountability through artificial 

structures, classification and 

organizations.’’ 67 FR 79282. 

Before issuing its proposal, 

Department officials met with many 

representatives of the affected 

community, including union officials 

and their legal counsel, to hear their 

views on the need for reform and the 

likely impact of changes that might be 

made. See 68 FR 58374. The 

Department’s proposal, developed with 

these discussions in mind, requested 

comments on several specific issues in 

order to base any revisions on a 

complete record reflecting the views of 

the parties affected and the 

Department’s consideration of the 

comments. Id. When the comment 

period closed, on March 27, 2003, the 

Department had received over 35,000 

comments. Id. After careful 

consideration of the comments, the 

Department issued its new union 

financial reporting rule on October 9, 

2003. 68 FR 58374. 

In November 2003, the AFL–CIO filed 

a complaint against the Department, 

challenging the rule. The suit was filed 

with the U.S. District Court for the 

District of Columbia; through this 

action, the AFL–CIO asked the court to 

order temporary, preliminary, and 

permanent relief to enjoin and vacate 

the Department’s rule. The rule was 

upheld on its merits by the district court 

(American Federation of Labor and 

Congress of Industrial Organizations v. 

Chao, 298 F.Supp.2d 104 (D.D.C. 2004), 

but on appeal the U.S. Court of Appeals 

for the District of Columbia Circuit 

(American Federation of Labor and 

Congress of Industrial Organizations v. 

Chao, 409 F.3d 377 (DC Cir. 2005) 

(‘‘AFL–CIO v. Chao’’) vacated the rule 

relating to the Form T–1. 

In light of the decision by the DC 

Circuit and guided by its opinion, the 

Department has again reviewed the 

proposal as it related to the Form T–1 

and the comments received on the 

proposal. This final Form T–1 rule is 

based on that review. Under this final 

Form T–1 rule a union must file a Form 

T–1 for a section 3(l) trust if it, alone or 

in combination with other unions, 

selects or appoints the majority of the 

members of the trust’s governing board 

or it contributes, alone or in 

combination with other unions, more 

than 50% of the trust’s revenue during 

the annual reporting period. This final 

Form T–1 rule will close a gap in the 

financial reporting regime that has 

provided unions and others with an 

opportunity to evade their reporting 

obligations under the Act. The rule 

achieves the Department’s goal, 

consistent with the Act’s purpose, of 

providing union members and the 

public with detailed information about 

the financial operations of unions. Such 

transparency allows union members to 

obtain the information they need to 

monitor their union’s affairs and to 

make informed choices about the 

leadership of their union and its 

direction. At the same time, this 

transparency promotes both the unions’

own interests as democratic institutions 

and the interests of the public and the 

government. 

B. Judicial Review of the 2003 Rule 

The district court upheld the rule in 

its entirety, except for temporarily 

delaying the rule’s implementation date. 

See American Federation of Labor and 

Congress of Industrial Organizations v. 

Chao, 298 F.Supp.2d 104 (D.D.C. 2004). 

On appeal, the DC Circuit 

unanimously upheld the Department’s 

promulgation of the revised Form LM–

2 as a reasonable exercise of its LMRDA 

rulemaking authority. AFL–CIO v. Chao, 

409 F.3d 377 (D.C. Cir. 2005). In a 

divided decision, however, the court 

vacated the Form T–1 rule because, in 

its view, the Department exceeded its 

authority by ‘‘requiring general trust 

reporting.’’ 409 F.3d at 378–79, 391. The 

court framed the issue before it as 

‘‘whether Form T–1 comports with the 

statutory requirements that the 

Department ‘‘find [such rule is] 

necessary to prevent’’ evasion of 

LMRDA Title II reporting 

requirements.’’ Id. at 386 (quoting 

section 208 of the LMRDA, 29 U.S.C. 

438). 

Given what it viewed as the ambiguity 

inherent in the word ‘‘necessary’’ as 

used in section 208 (authorizing reports 

‘‘necessary to prevent circumvention or 

evasion of * * * reporting 

requirements’’), the court examined the 

rule to determine whether the 

Department’s interpretation of the 

statute was permissible. Id. at 386–87; 

see also Chevron U.S.A., Inc. v. Natural 

Resources Defense Council, Inc., 467 

U.S. 837, 843 (1984). The AFL–CIO 

argued that the Department’s T–1 rule 

was impermissible, in part, because it 

encompassed joint trusts, which by 

operation of statute were independent of 

a union’s control. Id. at 388; see 29 

U.S.C. 186(c). In rejecting this argument, 

the court noted that the statutory 

definition of ‘‘trust in which a union is 

interested,’’ 29 U.S.C. 402(l), included 

joint trusts, such as Taft-Hartley 

employer-funded benefit plans, and 

agreed with the Department’s 

interpretation that such trusts could be 

used to evade the reporting 

requirements. Id. at 387–88. The court 

agreed with the Department’s reasoning 

that ‘‘[s]ince the money an employer 

contributes to such a ‘trust’ * * * might 

otherwise have been paid directly to the 

workers in the form of increased wages 

and benefits, the members * * * have a 

right to know what funds were 

contributed, how the money is managed 

and how it is being spent.’’ Id. at 387. 

The court held that ‘‘[s]ection 208 does 

not limit the [Department] to requiring 

reporting only in order to disclose 

transactions involving the misuse of 

union members’ funds because leaving 

the decision about disclosure to such 

trusts * * * would allow unions to 

circumvent or evade reporting on the 

use of members’ funds diverted to the 

trust.’’ Id. at 388–89. 


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The court recognized that reports on 

trusts that reflect a union’s financial 

condition and operations are within the 

Department’s rulemaking authority, 

including trusts ‘‘established by one or 

more unions or through collective 

bargaining agreements calling for 

employer contributions, [where] the 

union has retained a controlling 

management role in the organization,’’

and also those ‘‘established by one or 

more unions with union members’

funds because such establishment is a 

reasonable indicium of union control of 

that trust.’’ Id. at 388, 389. The court 

acknowledged that the Department’s 

findings in support of its rule were 

based on particular situations where 

reporting about trusts would be 

necessary to prevent evasion of the 

related unions’ own reporting 

obligations. Id. at 387–88. One example 

included a situation where ‘‘trusts [are] 

funded by union members’ funds from 

one or more unions and employers, and 

although the unions retain a controlling 

management role, no individual union 

wholly owns or dominates the trust, and 

therefore the use of the funds is not 

reported by the related union.’’ Id. at 

389 (emphasis added). In citing these 

examples, the court explained that 

‘‘absent circumstances involving 

dominant control over the trust’s use of 

union members’ funds or union 

members’ funds constituting the trust’s 

predominant revenues, a report on the 

trust’s financial condition and 

operations would not reflect on the 

related union’s financial condition and 

operations.’’ Id. at 390. For this reason, 

while acknowledging that there are 

circumstances under which the 

Secretary may require a report, the court 

disapproved of a broader application of 

the rule to require reports by any union 

simply because the union satisfied a 

reporting threshold (a union with 

annual receipts of at least $250,000 that 

contributes at least $10,000 to a section 

3(l) trust with annual receipts of at least 

$250,000). Id. 

In reaching its conclusion, the court 

rejected an underlying premise of the 

rule that a union’s appointment of a 

single member to a trust’s governing 

board could trigger a reporting 

obligation, even though the union’s 

contribution to the trust constituted a 

fraction of the trust’s total revenues. Id. 

at 390. The court explained that 

‘‘[w]here a union has minimal control 

over trust fund spending and a union’s 

contribution is so small a part of the 

trust’s revenues, and the trust is not 

otherwise controlled by unions or 

dominated by union members’ funds, 

the trust lacks the characteristics of the 

unreported transactions in the examples 

on which the [Department] based the 

final rule.’’ Id. at 391. In these 

circumstances, in contrast to the 

examples relied upon by the 

Department, the element of management 

control or financial dominance is 

missing. Id. 

In a separate opinion, then Circuit 

Judge Roberts concurred with the 

majority’s conclusion that the Form 

LM–2 was valid, but dissented on the 

majority’s decision to vacate the 

provisions of the Final Rule relating to 

Form T–1. 409 F.3d at 391. Contrary to 

the majority, he concluded, as had the 

district court, that the Department had 

established, as shown by the rulemaking 

record, that a section 3(l) trust report 

was necessary to prevent a union’s 

circumvention of its reporting 

obligations. 

The Department sought rehearing and 

rehearing en banc of the panel’s 

decision, asserting that the panel erred 

in requiring the Department to make 

additional findings in order to establish 

a reporting obligation with respect to 

any trust that met the statutory 

definition of a section 3(l) trust and 

which satisfied the rule’s monetary 

threshold requirements. The petitions 

were denied on October 28, 2005. 

C. LMRDA: Reporting Provisions and 

Their Enforcement 

1. History and Summary of the LMRDA 

In enacting the LMRDA in 1959, a 

bipartisan Congress made the legislative 

finding that in the labor and 

management fields ‘‘there have been a 

number of instances of breach of trust, 

corruption, disregard of the rights of 

individual employees, and other failures 

to observe high standards of 

responsibility and ethical conduct 

which require further and 

supplementary legislation that will 

afford necessary protection of the rights 

and interests of employees and the 

public generally as they relate to the 

activities of labor organizations, 

employers, labor relations consultants, 

and their officers and representatives.’’

LMRDA, section 2(a), 29 U.S.C. 401(a). 

The statute creates a comprehensive 

scheme designed to empower union 

members by providing them the means 

to maintain democratic control over 

their unions and ensure a proper 

accounting of union funds. Together 

with the Act’s fiduciary duty provision, 

29 U.S.C. 501, which directly regulates 

the primary conduct of union officials, 

the Act’s various reporting 

requirements, 29 U.S.C. 431–433, 

operate to safeguard a union’s funds 

from depletion by improper or illegal 

means. The reporting requirements also 

help ensure that a union official’s duty 

to the union and its members is not 

subordinate to that official’s own 

personal financial interests. 

The legislation was the direct 

outgrowth of a Congressional 

investigation conducted by the Select 

Committee on Improper Activities in the 

Labor or Management Field, commonly 

known as the McClellan Committee, 

chaired by Senator John McClellan of 

Arkansas. In 1957, the committee began 

a highly publicized investigation of 

union racketeering and corruption; and 

its findings of financial abuse, 

mismanagement of union funds, and 

unethical conduct provided much of the 

impetus for enactment of the LMRDA’s 

remedial provisions. See generally 

Benjamin Aaron, The LaborManagement Reporting and Disclosure 

Act of 1959, 73 Harv. L. Rev. 851, 851–

55 (1960). During the investigation, the 

committee uncovered a host of improper 

financial arrangements between officials 

of several international and local unions 

and employers (and labor consultants 

aligned with the employers) whose 

employees were represented by the 

unions in question or might be 

organized by them. Similar 

arrangements also were found to exist 

between union officials and the 

companies that handled matters relating 

to the administration of union benefit 

funds. See generally Interim Report of 

the Select Committee on Improper 

Activities in the Labor or Management 

Field, S. Report No. 85–1417 (1957); see 

also William J. Isaacson, Employee 

Welfare and Benefit Plans: Regulation 

and Protection of Employee Rights, 59 

Colum.L.Rev. 96 (1959). 

The statute was designed to remedy 

these various ills through a set of 

integrated provisions aimed at union 

governance and management. These 

include a ‘‘bill of rights’’ for union 

members, which provides for equal 

voting rights, freedom of speech and 

assembly, and other basic safeguards for 

union democracy, see LMRDA, sections 

101–105, 29 U.S.C. 411–415; financial 

reporting and disclosure requirements 

for unions, union officers and 

employees, employers, labor relations 

consultants, and surety companies, see 

LMRDA, sections 201–206, 211, 29 

U.S.C. 431–436, 441; detailed 

procedural, substantive, and reporting 

requirements relating to union 

trusteeships, see LMRDA, sections 301–

306, 29 U.S.C. 461–466; detailed 

procedural requirements for the conduct 

of elections of union officers, see 

LMRDA, sections 401–403, 29 U.S.C. 

481–483; safeguards for unions, 

including bonding requirements, the 


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establishment of fiduciary 

responsibilities for union officials and 

other representatives, criminal penalties 

for embezzlement from a union, loans 

by a union to officers or employees, 

employment by a union of certain 

convicted felons, and payments to 

employees for prohibited purposes by 

an employer or labor relations 

consultant, see LMRDA, sections 501–

505, 29 U.S.C. 501–505; and 

prohibitions against extortionate 

picketing and retaliation for exercising 

protected rights, see LMRDA, sections 

601–611, 29 U.S.C. 521–531. As 

explained in the Department’s 2002 

proposal and 2003 rule, the reporting 

regimen had hardly changed in the more 

than 40 years since the Department 

issued its first reporting rule under the 

LMRDA. 25 FR 433, 434 (1960). 

2. Statutory Authority 

This rule is issued pursuant to section 

208 of the LMRDA, 29 U.S.C. 438. 

Section 208 authorizes the Secretary of 

Labor to issue, amend, and rescind rules 

and regulations to implement the Act’s 

reporting provisions. Secretary’s Order 

4–2001, issued May 24, 2001, and 

published in the Federal Register on 

May 31, 2001 (66 FR 29656), continued 

the delegation of authority and 

assignment of responsibility to the 

Assistant Secretary for Employment 

Standards in Secretary’s Order 5–96 of 

the Secretary’s functions under the 

LMRDA. 

Section 208 allows the Secretary to 

issue ‘‘reasonable rules and regulations 

(including rules prescribing reports 

concerning trusts in which a labor 

organization is interested) as [she] may 

find necessary to prevent the 

circumvention or evasion of [the Act’s] 

reporting requirements.’’ 29 U.S.C. 438. 

Section 3(l) of the LMRDA, 29 U.S.C. 

402(l) provides: 

‘‘Trust in which a labor organization is 

interested’’ means a trust or other fund or 

organization (1) which was created or 

established by a labor organization, or one or 

more of the trustees or one or more members 

of the governing body of which is selected or 

appointed by a labor organization, and (2) a 

primary purpose of which is to provide 

benefits for the members of such labor 

organization or their beneficiaries. 

The authority to prescribe rules 

relating to section 3(l) trusts augments 

the Secretary’s general authority to 

prescribe the form and publication of 

other reports required to be filed under 

the LMRDA. Section 201 of the Act 

requires unions to file annual, public 

reports with the Department, detailing 

the union’s cash flow during the 

reporting period, and identifying its 

assets and liabilities, receipts, salaries 

and other direct or indirect 

disbursements to each officer and all 

employees receiving $10,000 or more in 

aggregate from the union, direct or 

indirect loans (in excess of $250 

aggregate) to any officer, employee, or 

member, any loans (of any amount) to 

any business enterprise, and other 

disbursements. 29 U.S.C. 431(b). The 

statute requires that such information 

shall be filed ‘‘in such detail as may be 

necessary to disclose [a union’s] 

financial conditions and operations.’’ Id. 

Large unions report this information on 

the Form LM–2. Smaller unions report 

less detailed information on the Form 

LM–3 or LM–4. 

D. The Rationale Underlying the Rule 

In the proposal and the 2003 rule, the 

Department outlined the reasons why 

labor organizations should report on the 

financial details of section 3(l) trusts. 

The guiding point in the rulemaking is 

the statutory command that the 

Department determine whether such 

reporting is necessary to prevent the 

circumvention or evasion of the 

LMRDA’s reporting obligations. See 67 

FR 79284 (‘‘Form T–1 contains various 

types of financial information that is 

intended to discourage circumvention 

or evasion of the reporting requirements 

in title II [of the LMRDA]’’). ‘‘The 

objective of this rule is to increase the 

transparency of union financial 

reporting by revising the LMRDA 

disclosure forms * * * [to] enable 

workers to be responsible, informed, 

and effective participants in the 

governance of their unions; discourage 

embezzlement and financial 

mismanagement; prevent the 

circumvention or evasion of the 

statutory reporting requirements; and 

strengthen the effective and efficient 

enforcement of the Act by [the 

Department].’’ Id. at 68 FR 58420 

(emphasis added). 

As explained further below, the Form 

T–1 is designed to close a reporting gap 

under the Department’s former rule 

whereby unions were only required to 

report on ‘‘subsidiary organizations.’’

Today’s rule will assure that union 

members will receive a more complete 

accounting of how their union’s funds 

are invested or otherwise expended. By 

reviewing the Form T–1, union 

members will receive information on 

funds that would be accounted for on 

the LM–2 but for their distribution 

through a trust in which the union has 

an interest. This rule will make it more 

difficult for a union, union officials, or 

other parties with influence over the 

union to avoid, simply by transferring 

money from the union’s books to the 

trust’s books, the basic reporting 

obligation that would apply if the funds 

had been retained by the union. 

Although the rule will not require such 

an accounting for all section 3(l) trusts 

in which a union participates, it will be 

required where a union, alone or in 

combination with other unions, 

appoints or selects a majority of the 

members of the trust’s governing board 

or where contributions by unions 

represent greater than 50% of the 

revenue of the trust. Thus the rule 

follows the instruction in AFL–CIO v. 

Chao, where the court concluded that 

the Secretary had shown that trust 

reporting was necessary to prevent 

evasion or circumvention where ‘‘trusts 

[are] established by one or more unions 

with union members’ funds because 

such establishment is a reasonable 

indicium of union control of the trust,’’

as well as where there are 

characteristics of ‘‘dominant union 

control over the trust’s use of union 

members’ funds or union members’

funds constituting the trust’s 

predominant revenues.’’ 409 F.3d at 

389, 390. 

The Act’s primary reporting 

obligation (Forms LM–2, LM–3, and 

LM–4) applies to labor organizations, as 

institutions; other important reporting 

obligations apply to officers and 

employees of labor organizations (Form 

LM–30), requiring them to report any 

conflicts between their personal 

financial interests and the duty they 

owe to the union they serve and to 

employers and labor relations 

consultants who must report payments 

to labor organizations and their 

representatives (Form LM–10). See 29 

U.S.C. 432; 29 U.S.C. 433. Thus, 

requiring unions to report the 

information requested by the Form T–1 

rule provides an essential check for 

union members and the Department to 

ensure that unions, union officials, and 

employers are accurately and 

completely fulfilling their reporting 

duties under the Act, obligations that 

can easily be ignored without fear of 

detection if reports related to trusts are 

not required. 

Under the instructions of the 

Department’s pre-2003 Form LM–2, a 

reporting obligation concerning section 

3(l) trusts would arise only if the trust 

was a ‘‘subsidiary’’ of the reporting 

union and met other requirements set by 

the Department, i.e., an entity wholly 

owned, wholly controlled and wholly 

financed by the union. See 68 FR 58413. 

Thus, the former rule, which was 

crafted shortly after the Act’s enactment, 

required reporting by only a portion of 

the unions that contributed to section 

3(l) trusts, and, in many cases, no 

reporting at all. During the intervening 


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decades, the financial activities of 

individuals and organizations have 

increased exponentially in scope, 

complexity, and interdependence. 67 FR 

79280–81. For example, many unions 

manage benefit plans for their members, 

maintain close business relationships 

with financial service providers such as 

insurance companies and investment 

firms, operate revenue-producing 

subsidiaries, and participate in 

foundations and charitable activities. 67 

FR 79280. The complexity of union 

financial practices, including business 

relationships with outside firms and 

vendors, increases the likelihood that 

union officers and employees may have 

financial interests in these businesses 

that might conflict with fiduciary 

obligations owed to the union and its 

members. As more labor organizations 

conduct their financial activities 

through sophisticated trusts, increased 

numbers of businesses have commercial 

relationships with such trusts, creating 

financial opportunities for union 

officers and employees who may 

operate, receive income from, or hold an 

interest in such businesses. In addition, 

employers also have fostered multifaceted business interests, creating 

further opportunities for financial 

relationships between unions, union 

officials, employers, and other entities, 

including section 3(l) trusts. 

In addition to the extensive changes 

in unions’ financial activities, some of 

the historical problems that led to the 

establishment of the LMRDA’s reporting 

provisions and other federal statutes 

regulating trusts still persist, as 

illustrated by the 2002 proposal and the 

comments received on the proposal. As 

suggested by the proposal (67 FR 79285) 

and reflected in the 2003 rule (68 FR 

58413), the enactment of ERISA has 

ameliorated many of the historical 

problems, but many section 3(l) trusts 

do not file the detailed financial reports 

that add transparency to the operations 

of such trusts. The Department provided 

examples of situations where funds held 

in section 3(l) trusts were being used for 

improper purposes by union officials: 

• Credible allegations that funds from 

a training benefits trust jointly 

administered by the union and 

employer had, without any public 

disclosure, been used to pay union 

officials supplementary salaries. 

• A case in which no information was 

publicly disclosed about the disposition 

of tens of thousands of dollars (over 

$60,000 per month) paid into a trust 

established to provide strike benefits. 

No information was disclosed because 

the trust was established by a group of 

union locals and not controlled by any 

single union. 

• A case in which a credit union trust 

largely financed by a union local had 

made large loans to union officials but 

had not been obligated to report them 

because the trust was not wholly owned 

by the union. Four loan officers, three 

of whom were officers of the Local, 

received 61% of the credit union’s 

loans. 

• A case in which local union 

officials established a building fund 

financed in part with union members’

pension funds. 

67 FR 79283. In each of these instances, 

the information would have been 

reported if the Form T–1 had been in 

place. 

Such trusts ‘‘pose the same 

transparency challenges as ‘off-thebooks’ accounting procedures in the 

corporate setting: Large scale, 

potentially unattractive financial 

transactions can be shielded from public 

disclosure and accountability through 

artificial structures, classification and 

organizations.’’ 67 FR 79282. The 

Department’s former rule required 

unions to report on only a subset of 

such trusts, which resulted in a gap in 

the reporting requirements on these 

trusts. As a result, members have long 

been denied important information 

about union funds that were being 

directed to other entities, ostensibly for 

the members’ benefit, such as joint 

funds administered by a union and an 

employer pursuant to a collective 

bargaining agreement, educational or 

training institutions, credit unions, and 

redevelopment or investment groups. 

See 67 FR 79285. The Form T–1 is 

necessary to close this gap, prevent 

certain trusts from being used to evade 

the Title II reporting requirements, and 

provide union members with 

information about financial transactions 

involving a significant amount of money 

relative to the union’s overall financial 

operations and other reportable 

transactions. 68 FR 58415 (2003). As 

explained in the proposal, additional 

trust reporting is necessary to ensure, as 

intended by Congress, the full and 

comprehensive reporting of a union’s 

financial condition and operations, 

including a full accounting to union 

members from whose toil the payments 

were exacted. 67 FR 79282–83. 

This final Form T–1 rule preserves the 

key aspects of the 2002 proposal, as 

revised by the 2003 rule, but the scope 

of the reporting requirement has been 

narrowed to conform with the D.C. 

Circuit’s decision in AFL–CIO v. Chao. 

Today’s rule is tied to the union’s 

reporting obligation under the LMRDA 

and its relationship to a section 3(l) 

trust. In general terms, the final Form T–

1 rule applies only to those unions that, 

alone or in combination with other 

unions, select or appoint a majority of 

the trustees or the members of the 

governing body of the section 3(l) trust, 

or, alone or in combination with other 

unions, contributed over 50% of the 

trust’s revenue during a one-year 

reporting period. A union that meets 

either of these conditions will be 

required to file the Form T–1. On the 

form, the union will report the amount 

of its contribution to the section 3(l) 

trust (including any contribution made 

on its behalf), and the trust’s total 

receipts and liabilities. In completing 

the form, the union must separately 

identify: any individual or entity from 

which the trust received $10,000 or 

more; any individual disbursement of 

$10,000 or more by the trust; and any 

entity or individual that received 

disbursements from the trust that 

aggregated to $10,000 or more. The rule 

reiterates the Department’s 

determination, expressed in both the 

proposal and the 2003 rule, that no 

union need file the Form T–1 if the trust 

already files a detailed ERISA report 

(Form 5500) or other reports required by 

federal or state law. Further, a union is 

excused from providing the detailed 

financial information required by the 

Form T–1 if it chooses to submit an 

audit of the trust that meets the criteria 

prescribed by the rule. A union that 

must file the Form T–1 will use the form 

and instructions published as an 

appendix to this rule. 

In the following discussion, the 

Department addresses the major 

components of the Form T–1 rule, its 

consideration of the views expressed in 

the comments, its rationale for the 

specific aspects of the final Form T–1 

rule and the determination that the 

Form T–1 rule is ‘‘necessary to prevent 

the circumvention and evasion of [the] 

reporting requirements’’ imposed by the 

LMRDA. 

To address the main points in the 

proposal, the comments received on the 

proposal, and the rationale for adopting 

or modifying various aspects of the 

proposal, the Department has chosen to 

utilize a question and answer format. 

For each question, the Department 

outlines the rationale it provided in the 

proposal and the preamble to the 2003 

rule. As appropriate, further explanation 

is provided in light of the Department’s 

review of the rulemaking record after 

the D.C. Circuit’s decision in AFL–CIO 

v. Chao. 

1. Should unions be required to report on 

section 3(l) trusts? 

2. Should some labor organizations be 

excepted from filing based on their size? 


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Federal Register / Vol. 71, No. 189 / Friday, September 29, 2006 / Rules and Regulations 57721 

3. Should there be an initial dollar 

threshold that a union’s financial 

contribution to a union must exceed before 

the union may be required to file a Form T–

1? 

4. When should a union that has met the 

initial dollar threshold be required to report 

on a trust in which it is interested? 

5. Where multiple unions participate in a 

single trust, which unions should be required 

to file the Form LM–2? 

6. Should itemization of substantial 

receipts and disbursements of the trust be 

required and, if so, what aggregate dollar 

value should trigger itemization? 

7. Should some unions be excepted from 

filing, if the trust already files a publiclydisclosed report, such as required by ERISA 

or other federal or state law, or the union 

submits an audit of the trust’s finances? 

8. What if a section 3(l) trust refuses to 

provide the reporting union with the 

information required to complete the Form 

T–1? 

9. What concerns about privacy or 

sensitive information are implicated by 

requiring the disclosure of information about 

the trust and how are these interests balanced 

with the right of members to obtain relevant 

financial information about their union? 

10. When should the rule take effect? 

11. What assistance will the Department 

provide unions to assist them with their 

section 3(l) reporting obligation? 

1. Should unions be required to report 

on section 3(l) trusts? 

The Department invited comment on 

whether its proposal was appropriate 

and sufficient for the purpose of 

providing full disclosure of pertinent 

financial information about section 3(l) 

trusts and whether alternate or 

additional approaches would achieve 

full disclosure while minimizing the 

reporting burden on unions. 68 FR 

79285. Numerous comments were 

received in favor of and against the 

proposal. Many comments objected to 

the Form T–1 as burdensome; they 

generally expressed similar opposition 

to any change in the rules relating to the 

Form LM–2. The Department disagreed 

with these comments and explained in 

detail why the Form LM–2 and Form T–

1 were needed and appropriate to 

achieve the reporting purposes 

underlying the LMRDA. See generally 

68 FR 58375–95. Other comments 

addressed the Department’s legal 

authority to require the unions to 

provide any information other than that 

required by the Department’s 

longstanding rules. See generally 68 FR 

58376–80. In response, the Department 

explained that the LMRDA vests the 

Department with authority to revise the 

reporting requirements in the manner 

proposed. Id. 

In preparing today’s rule, the 

Department determined that it would be 

helpful to clarify a point that may 

continue to confuse stakeholders about 

the effect of a trust’s coverage by ERISA, 

particularly insofar as Taft-Hartley 

trusts are concerned. For example, one 

comment objected to the Form T–1 as 

‘‘absolutely duplicative’’ of existing 

reporting requirements. An 

international union supported the 

proposition that members should know 

about the receipts and disbursements, 

including those made by relatively 

‘‘mundane trusts,’’ such as building 

funds and credit unions, but that the 

Form T–1 merely duplicates 

information that is already reported on 

the Form 5500 that ERISA requires. 

Another comment indicated that such 

reporting was unnecessary because of 

the fiduciary obligation that attaches to 

individuals associated with union 

benefit funds. 

These comments fail to fully 

understand the reporting required of 

Taft-Hartley trusts and the reporting 

requirements under other laws 

regulating these trusts. In both the 

proposed and the 2003 rule, the 

Department acknowledged that the 

LMRDA’s reporting requirements would 

be satisfied by the submission of the 

detailed report filed by an ERISAcovered trust or an audit that satisfied 

ERISA requirements. 67 FR 79285; 68 

FR 58413. In the 2003 rule, the 

Department explicitly referred to the 

Form 5500 and explained that the audit 

alternative could be satisfied by a union 

that submitted an audit meeting 

prescribed, ERISA-based standards. 68 

FR 58413. 

The misconception underlying the 

comments is based in the assumption 

that Form 5500 reports are filed for all 

section 3(l) trusts. They are not. Some 

section 3(l) trusts fall outside of the 

reporting requirements of ERISA. ERISA 

only covers pension and ‘‘employee 

welfare benefit plans.’’ 29 U.S.C. 1002. 

While there is overlap between many 

section 3(l) trusts and ERISA ‘‘employee 

welfare benefit plans,’’ there are also 

funds in which unions participate that 

fall outside ERISA coverage, including 

strike funds, recreation plans, hiring 

hall arrangements, and unfunded 

scholarship programs. 29 CFR 2510.3–1. 

Other section 3(l) trusts that are subject 

to ERISA are not required to file the 

Form 5500 or file only abbreviated 

schedules. See 29 CFR 2520.104–20 

(plans with fewer than 100 

participants); 29 CFR 2520.104–22 

(apprenticeship and training plans); 29 

CFR 2520.104–26 (unfunded dues 

financed welfare plans); 29 CFR 

2520.104–27 (unfunded dues financed 

pension plans). See also Reporting and 

Disclosure Guide for Employee Benefit 

Plans, U.S. Department of Labor 

(reprinted 2004), available at http:// 

www.dol.gov/ebsa/pdf/rdguide.pdf. 

Thus, the Form T–1 fills the information 

gap confronted by union members who, 

absent the rule, would be unable to 

obtain information about a trust 

comparable to that disclosed by the 

Form 5500, even though the trust may 

be used to circumvent or evade LMRDA 

Title II reporting requirements. 

The fiduciary duty to refrain from 

taking a proscribed action has never 

been thought to be sufficient by itself to 

protect the interests of a trust’s 

beneficiaries. Disclosure and accounting 

complement the duty of an agent to act 

in his principal’s interest. See 

Restatement (Third) of Agency § 8.01 

(T.D. No. 6, 2005) et seq.; see also 1 

American Law Institute, Principles of 

Corporate Governance § 1.14 (1994). 

Today’s rule extends the reporting 

requirement to those union benefit 

funds that previously were under no 

explicit federal obligation to make such 

disclosure. Despite the additional 

coverage provided by this rule, it is 

likely that some officials will doubtless 

continue to devise methods to deny 

union members the benefit of trust 

funds derived from their own dues. See 

Archibald Cox, Internal Affairs of Labor 

Organizations Under the Labor Reform 

Act of 1959, 58 Mich.L.Rev. 819, 827 

(1960) (‘‘True criminals will 

undoubtedly ignore the duty to report’’). 

Union officers and union 

representatives have a similar fiduciary 

duty to their union, but the 

Department’s case files reveal numerous 

examples of embezzlement of union 

funds. The Form T–1, by disclosing 

information to union members, the true 

beneficiaries of section 3(l) trusts, will 

increase the likelihood that wrongdoing 

is detected. See Cox, id. (‘‘The official 

whose fingers itch for a ‘fast buck’ but 

who is not a criminal will be deterred 

by the fear of prosecution if he files no 

report and by fear of reprisal from the 

members if he does’’). Further, since the 

union’s obligation to submit a Form T–

1 overlaps with the responsibility of 

union officials to disclose payments 

received from the trust, the prospect 

that one party may report the payment 

increases the likelihood that a failure by 

the other party to report the payment 

will be detected. Moreover, given the 

increased transparency that results from 

the Form T–1 reporting, in some 

instances today’s rule may cause the 

parties to reconsider the primary 

conduct that would trigger the reporting 

requirement. 

The comments received by the 

Department further illustrated how the 

absence of a rule like the Form T–1 

facilitated the diversion of unionVerDate Aug<31>2005 20:54 Sep 28, 2006 Jkt 208001 PO 00000 Frm 00007 Fmt 4701 Sfmt 4700 E:\FR\FM\29SER4.SGM 29SER4

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contributed trust funds for improper 

personal gain, and permitted the 

evasion of the LMRDA’s Title II 

reporting obligations. A labor policy 

group identified multiple instances 

where union officials were charged, 

convicted, or both, for embezzling or 

otherwise improperly diverting union 

trust funds for their own gain, including 

the following: (1) Five individuals 

charged with conspiring to steal over 

$70,000 from a local’s severance fund; 

(2) two local union officials confessed to 

stealing about $120,000 from the local’s 

job training funds; (3) an administrator 

of a local’s retirement plan was 

convicted of embezzling about $300,000 

from the fund; (4) a local union 

president embezzled an undisclosed 

amount of money from the local’s 

disaster relief fund; (5) an employee of 

an international union embezzled over 

$350,000 from a job training fund; (6) a 

former international officer, who had 

also been a director and trustee of a 

union benefit fund, was convicted of 

embezzling about $100,000 from the 

union’s apprenticeship and training 

fund; (7) a former officer of a national 

union was convicted of embezzling 

about $15,000 in funds from the union 

and about $20,000 from the union’s 

welfare benefit fund; and (8) a former 

training director of a union’s pension 

and welfare fund was charged and 

convicted of receiving gifts and 

kickbacks from a vendor that provided 

training for union members. 

These comments recognize that 

existing safeguards intended to protect 

trusts and trust beneficiaries do not 

prevent the diversion of funds by some 

officials to trusts in order to circumvent 

or evade the LMRDA’s reporting 

provisions. Both historical and recent 

examples demonstrate the vulnerability 

of trust funds to looting by union 

officials and others. The McClellan 

Committee, as discussed above, 

provided several examples of union 

officials using funds held in trust for 

their own purposes rather than for their 

union and its members. Additional 

examples of the misuse of union benefit 

funds and trust funds for personal gain 

may be found in the 1956 report of the 

Senate’s investigation of welfare and 

pension plans, completed as the 

McClellan Committee was beginning its 

investigation. See Welfare and Pension 

Plans Investigation, Final Report of the 

Comm. of Labor and Public Welfare, S. 

Rep. No. 1734 (1956). Such problems 

continued, even after the passage of the 

LMRDA and ERISA. In the most 

comprehensive report concerning the 

influence of organized crime in some 

unions, a presidential commission 

concluded that ‘‘the plunder of union 

resources remains an attractive end in 

itself. * * * The most successful 

devices are the payment of excessive 

salaries and benefits to organized crimeconnected union officials and the 

plunder of workers’ health and pension 

funds.’’ President’s Commission on 

Organized Crime, Report to the 

President and Attorney General, The 

Edge: Organized Crime, Business, and 

Labor Unions (1986), at 12. 

More recently, union officials in New 

York were convicted in a ‘‘pension-fund 

fraud/kickback scheme’’ where union 

officials were bribed by members of 

organized crime to invest pension fund 

assets in corrupt investment vehicles. 

The majority of the funds were to be 

invested in legitimate securities but 

millions of dollars were to placed into 

a sham investment, the body of which 

was to be used to fund kickbacks to the 

union officers with the hope that the 

return on investment from the majority 

of the legitimately invested assets would 

cover the amounts lost as kickbacks. 

U.S. v. Reifler, 2006 WL 999937 (2d Cir. 

2006). In another case, nepotism and nobid contracts depleted the union’s 

health and welfare funds to the sum of 

several million dollars. The problems 

associated with the fund included, 

among others, paying the son-in-law of 

a board member, a local union official, 

a salary of $119,000 to manage a 

scholarship program that gave out 

$28,000 per year; a daughter of this 

board member was paid $111,799 a year 

as a receptionist; and the fund paid 

$123,000 for claims review work that 

required only a few hours of effort a 

week. See Steven Greenhouse, Laborers’

Union Tries to Oust Officials of Benefits 

Funds, N.Y. Times, June 13, 2005, at B5. 

In addition, while the comments 

received from unions and their members 

generally opposed any reporting 

obligation concerning trusts (beyond the 

then-existing regulation that limited 

reporting to subsidiaries, entities 

‘‘wholly owned’’ by unions), there were 

some notable exceptions among the 

union members who commented on this 

point. As stated in the preamble to the 

2003 rule, ‘‘[m]any union members 

recommended generally greater scrutiny 

of joint employer-union funds 

authorized under the LMRDA.’’ 68 FR 

58414. These members included several 

from a single international union. They 

explained that under the union’s 

collective bargaining agreements, the 

employer sets aside at least $.20 for each 

hour worked by a member and that this 

amount is paid into a benefit fund 

known as a ‘‘joint committee.’’ The 

comments indicate that some of the 

funds are ‘‘lavished on junkets and 

parties’’ and that the union uses the 

joint committees to reward political 

supporters of the union’s officials. They 

stated that the union refuses to provide 

information about the funds, including 

amounts paid to ‘‘union staff.’’ From the 

perspective of one member, the union 

does not want ‘‘this conflict of interest’’

to be exposed. 

As the foregoing discussion, like the 

preamble to the 2003 rule, makes clear, 

the Form T–1 rule will add necessary 

safeguards to deter circumvention and 

evasion of the Act’s reporting 

requirements. The rule will make it 

more difficult for unions and complicit 

trusts to avoid the disclosure required 

by the LMRDA. Union members will be 

able to review financial information 

they may not otherwise have had, 

empowering them to better oversee their 

union’s officials and finances as 

contemplated by Congress. 

2. Should some labor organizations be 

excepted from filing based on their size? 

The Department proposed that all 

unions that contributed $10,000 or more 

to a ‘‘significant’’ section 3(l) trust file 

a Form T–1. A ‘‘significant trust’’ was 

defined as one having annual receipts of 

at least $200,000. 67 FR 79284. Thus, 

the obligation would attach to all unions 

without regard to their size as measured 

by the amount of their own annual 

receipts. See 68 FR 58412. In this 

regard, the proposal departed from the 

model proposed for the Form LM–2, 

where only unions with annual receipts 

of at least $200,000 would be obliged to 

provide the kind of detailed reporting 

comparable to the Form T–1. Many 

comments expressed the view that the 

Form T–1 would impose a substantial 

burden on small labor organizations that 

are usually staffed with part-time 

volunteers, with little computer or 

accounting experience and limited 

resources to hire professional services. 

Id. In the 2003 rule, the Department 

explained that it had been persuaded 

that the relative size of a union, as 

measured by its overall finances, will 

affect its ability to comply with the 

proposed Form T–1 reporting 

requirements. 68 FR 58412–13. For this 

reason, the Department set as a Form T–

1 reporting threshold a union’s receipt 

of at least $250,000 during the one-year 

reporting period, the same filing 

threshold that applies for the Form LM–

2. 68 FR 58413. For the same reason, the 

final Form T–1 rule applies only to 

unions that have $250,000 or more in 

annual receipts and meet the other parts 

of the test for filing the Form T–1 as 

stated in the new rule. 


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3. Should there be an initial dollar 

threshold that a union’s financial 

contribution to a trust must exceed 

before the union may be required to file 

a Form T–1? 

The Department proposed that any 

union that contributes $10,000 or more 

to a section 3(l) trust must file the Form 

T–1, and that unions that contributed 

less than this amount would not have to 

file the form. 67 FR 79284. The 

Department explained that without 

contributions of this magnitude a union 

likely would encounter some difficulty 

in persuading the trust to provide a 

detailed accounting of the latter’s 

financial activities. 67 FR 79284. The 

Department invited comment on 

whether the $10,000 contribution was 

appropriate as a filing threshold or 

whether it would be preferable to 

prescribe a threshold that reflected the 

union’s proportional share of the trust’s 

receipts, such as 5%, 10%, or 25%. 67 

FR 79285. 

A number of comments stated that the 

$10,000 union contribution threshold 

was too low and recommended various 

alternatives. 68 FR 58415. Those 

comments urged the Department to 

revise the proposal so that the threshold 

was based on ownership or control of at 

least 50% of the trust. Id. In the 2003 

rule, the Department explained that the 

alternatives suggested would not 

achieve the full disclosure sought by the 

proposal; instead, it would deny 

information to the members of all the 

other unions participating in the trust. 

68 FR 58415–16. The Department 

explained that the $10,000 threshold for 

union contributions provided an 

appropriate compromise between 

unnecessarily burdening a union and 

providing union members with 

information about how a trust that has 

received a significant amount of their 

union’s revenues has managed the 

trust’s finances. 68 FR 58415. The Form 

T–1 provides them with the means to 

identify the amount and purpose of 

large payments to individuals or entities 

and thereby determine whether there 

might be an irregularity in the payment 

or the relationship between the payee 

and officials of the members’ own 

union. Id. 

The comments that sought to impose 

a filing threshold based on principles of 

ownership or control of the trust are 

addressed in the response to question 4, 

below. In that section, the Department 

discusses its determination that unions’

filing obligations will depend on their 

selection of a majority of the governing 

members of a trust or their contribution 

of more than 50% of the union’s annual 

revenue. Despite its adoption of this 

test, the Department has chosen to 

retain a $10,000 initial threshold. 

Unions that contribute less than this 

amount have no Form T–1 filing 

obligation. The Department concludes 

that the burden on a union of filing the 

Form T–1 under these circumstances 

outweighs the marginal increase in 

transparency that would be provided to 

union members whose union has 

contributed less than $10,000 that year. 

Pursuant to this bright-line threshold, a 

union that contributes less than $10,000 

need not take the time to consider any 

other factors relevant to a determination 

of whether the Form T–1 is required. 

Based on the amount of its annual 

contribution alone, the union will 

recognize that it need not file a Form T–

1. 

4. When should a union that has met the 

initial dollar threshold be required to 

report on a trust in which it is 

interested? 

The Department’s proposal required 

any union, regardless of its size or the 

portion of the trust’s receipts its 

payments represented, to file a report if 

it contributed $10,000 or more to a 

section 3(l) trust during the reporting 

period and the trust had annual receipts 

of at least $200,000. The proposal, 

however, invited comment on whether 

adequate disclosure could be achieved 

instead by expanding the definition of 

‘‘subsidiary’’ to include trusts that were 

closely related to the union but not 

‘‘100% owned, controlled and financed 

by the [union].’’ 67 FR 79285. The 

Department suggested that this 

alternative would borrow from the test, 

used in other contexts, to determine 

whether multiple companies constitute 

a ‘‘single entity.’’ Id. The Department 

explained that this approach would be 

based on various factors, including an 

assessment as to the integration of the 

companies’ operations and their 

common management. Id. 

In the 2003 rule, the Department 

explained that it had received only a 

few comments on the ‘‘single entity’’

test. 68 FR 58416. After considering the 

comments, the Department determined 

that the test would be less effective than 

other approaches, because it could be 

easily evaded by unions seeking to 

conceal their relationship with a trust. 

Id. The Department further explained 

that even if information concerning the 

relationship between the trust and the 

union was readily available, the test 

could prove difficult to apply and thus 

was a poor substitute for a ‘‘bright line’’

standard pegged to a specified dollar 

threshold. Id. 

The ‘‘single entity’’ alternative was 

mentioned in the D.C. Circuit’s opinion 

in AFL–CIO v. Chao, but the court did 

not approve or disapprove of this 

approach. 409 F.3d at 390–91. Instead, 

the court focused its inquiry on the 

extent of the unions’ relationship with 

section 3(l) trusts and indicia of their 

management control or financial 

domination of the trusts. Id. at 388–89. 

Several comments received by the 

Department noted that the union’s 

control over, not merely its participation 

in, a trust should fix any reporting 

obligation, and thus objected to the 

Department’s proposal imposing a 

general reporting obligation on all large 

unions. The AFL–CIO’s objection to the 

proposal was twofold: ‘‘If the union 

does not control the trust, the trust 

cannot be used to circumvent the 

reporting requirements; and if the union 

does not control the trust it cannot 

compel the trust to divulge the detailed 

financial information [required].’’ It 

explained: ‘‘[T]he Department’s 

proposal does not require that the union 

have effective control over the trust. 

Without de facto, or actual, control over 

a trust’s financial management, a labor 

organization has no mechanism by 

which it can circumvent or evade the 

Act’s reporting requirements.’’ Further, 

even though the AFL–CIO did not 

embrace the ‘‘single entity’’ approach, it 

viewed this approach as ‘‘a helpful 

starting point.’’ While disagreeing with 

the mechanisms suggested by the 

Department, it acknowledged that the 

Department possessed the authority ‘‘for 

developing an analytical framework for 

identifying ‘‘significant trusts’’ as to 

which financial disclosure should be 

required.’’ A local union, while 

generally opposed to the Form T–1, 

stated that ‘‘it seems reasonable that 

ownership or control can only be 

attributed to parties holding over 50% 

ownership of an organization.’’

Under the proposed rule, all covered 

unions were required to report on 

organizations with annual receipts of 

$200,000 or more and that met the 

definition of a section 3(l) trust. Based 

on the comments and the decision in 

AFL–CIO v. Chao, the Department has 

reduced the types of trusts for which 

reports are required. Under today’s 

Form T–1 rule, a reporting obligation 

exists where the union, alone or with 

other unions, appoints or selects the 

majority of a section 3(l) trust’s 

governing board or its contributions to 

the trust, alone or in combination with 

other unions, represents more than 50% 

of the trust’s revenue during the 

reporting period. For the purpose of 

determining whether a union selected 

the majority of the members of a section 

3(l) trust’s governing board, a member 

selected solely by one or more members 


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who were themselves selected solely by 

a union will be considered a unionselected member. 

Under the Form T–1, unions that 

select the majority of trust board 

members, or provide the majority of a 

union’s annual revenue, are required to 

file a report. This test is responsive to 

the comments that contended that 

reporting is justified only when there 

are aspects of union ownership or 

control over the trust. The test is also 

responsive to the concerns expressed by 

the Court of Appeals when it vacated 

the 2003 Form T–1, in that the test looks 

to the relationship between the union or 

unions and the trust and relies on 

principles of management control and 

financial domination. Although the 

Department recognizes that a union that 

meets this test may or may not be 

directing the disbursements of a trust, 

either directly or though union officials, 

it is apparent that this type of union/ 

trust relationship can lead to the 

circumvention or evasion of the 

reporting requirements. See the 

response to question 1, above. The 

Department has determined that this 

test is necessary to prevent the 

circumvention and evasion of the Title 

II reporting requirements. 

A union that, along with other unions, 

selects a majority of the trust’s board 

members, or, along with other unions, 

contributes more than 50% of the 

union’s annual revenue, will be 

required to file Form T–1. As discussed 

in greater detail under question 5, 

directly below, the Department 

recognizes that such a union did not 

unilaterally select a majority of a trust’s 

board, and did not single-handedly 

provide more than 50% of the trust’s 

revenue. The Department nevertheless 

recognizes, as did the Court in AFL–CIO 

v. Chao, that there are examples 

establishing that such participating 

unions ‘‘retain a controlling 

management role, [even though] no 

individual union wholly owns or 

dominates the trust.’’ 409 F.3d at 389. 

Absent the Form T–1, the contributing 

unions, if so inclined, would be able to 

use the trusts as a vehicle to expend 

pooled union funds without the 

disclosure required by Form LM–2 and 

the members of these unions would 

continue to be denied information vital 

to their interests. It seems apparent that 

if a single union may circumvent its 

Form LM–2 reporting obligations when 

it retains a controlling management role 

or financially dominates a trust, then a 

group of unions is equally capable of 

doing so. A rule directed to preventing 

a single union from circumventing the 

law must, in all logic, be similarly 

directed to preventing multiple unions 

from also evading their legal obligations. 

5. Where multiple unions participate in 

a single trust, which unions should be 

required to file the Form LM–2? 

The proposal did not differentiate 

among the reporting obligations of 

unions contributing to the same trust. 

Any union that satisfied the reporting 

threshold would have to submit the 

Form T–1, even though the union’s 

share only represented a relatively small 

portion of the total contributions made 

to the trust by unions. Several 

comments opposed the Department’s 

approach as requiring duplicate reports 

and described trust reporting as unduly 

burdensome unless a union contributed 

a substantial share of the trust’s receipts. 

An international union explained that 

it was not uncommon for several locals 

to participate in an apprenticeship and 

training fund that would be funded by 

payments from employers pursuant to 

negotiated agreements providing for ‘‘a 

cents per hour’’ contribution for hours 

worked by each of their employees. As 

an example, the union discussed a fund 

with annual contributions over 

$300,000 in which seven locals 

participated. Per local contributions 

ranged from about $10,000 to about 

$100,000. The fund had four 

management and four labor trustees; 

three from different locals contributing 

to the trust and a fourth from the 

unions’ parent organization. The union 

also explained that it is common for 

local unions in different crafts (affiliated 

with different parent bodies) to 

participate in a fund. It explained that 

in these instances, it would be unusual 

for a single craft or local to represent a 

majority of the union trustees. It stated 

that in such circumstances, it is 

unrealistic to suggest that any single 

union or craft controls the trust. 

As suggested by the Department’s 

proposal and the apprenticeship and 

training fund just discussed, it is not 

uncommon for multiple unions to 

participate in a section 3(l) trust without 

any single union contributing a majority 

of the trust’s revenues. In some trusts, 

such as strike funds, unions may be the 

sole contributors to the fund; in others, 

such as Taft-Hartley trusts, the trust will 

be funded by employers, but such funds 

are established through collective 

bargaining agreements and the employer 

contributions are made for the benefit of 

the members of the participating unions. 

Thus, multiple-union funds typically 

will consist solely of funds that are held 

in trust for the members of the various 

participating unions, with no particular 

union contributing directly, or 

indirectly by an employer on its behalf, 

a majority of the trust’s revenues. As 

such, unless a reporting obligation is 

imposed on one or more of the unions 

on some basis other than majority 

contributions, no union members will 

receive any information on the trust’s 

finances—without regard to the 

importance of the revenues relative to 

other assets of any participating union. 

In its proposal, the Department 

illustrated the need for reporting on 

section 3(l) trusts with four examples in 

which unions had evaded their 

reporting obligations through their 

involvement with such trusts. One of 

these examples included the improper 

diversion of funds from a strike fund in 

which no single union held a 

controlling interest. 67 FR 79283. The 

absence of any union reporting 

obligations facilitated the improper 

disposition of thousands of dollars (over 

$60,000 per month) from the strike 

fund. As discussed above, a single 

union may circumvent its Form LM–2 

reporting obligations when it retains a 

controlling management role or 

financially dominates a trust, and there 

is no basis to conclude that a group of 

unions is not equally capable of doing 

so. Disbursements from a trust of pooled 

union money reflect the contributing 

unions’ financial conditions and 

operations as clearly as the 

disbursements from a trust funded by a 

single union. A rule directed to 

preventing a single union from 

circumventing or evading the law 

should not permit the same conduct 

when it is undertaken by more than one 

union. 

As a result of this conclusion, 

multiple unions may be required to 

report on a single trust. In responding to 

comments about where to place the 

reporting obligation in such situations, 

the Department considered two 

alternatives: fixing the obligation on the 

union with the greatest stake in the 

trust; or allowing one of the 

participating unions to voluntarily take 

on this responsibility. 68 FR 58415. 

While these alternatives may provide an 

appropriate rationale for fairly and 

roughly allocating the reporting burden, 

each suffers from the same basic 

infirmity—union members are not likely 

to view reports filed by other unions 

when searching for information on the 

financial activities of their own union 

and its trusts. Members of other unions 

participating in the trust would be 

effectively denied information no less 

vital to their interests than the 

information provided to members of the 

reporting union. Furthermore, this 

reporting gap could allow some unions 

and individuals to evade their reporting 


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Federal Register / Vol. 71, No. 189 / Friday, September 29, 2006 / Rules and Regulations 57725 

obligations under the Act. Improper 

payments will be much easier to conceal 

if the Form T–1 was only filed by some 

of the participating unions (some 

vendors or contributors to the section 

3(l) trust may only be known by 

members of a particular union). See 

example discussed below in question 6. 

For these reasons, the Department has 

determined that where multiple unions 

each contribute $10,000 or more to the 

trust during the reporting period, and 

either they appoint a majority of the 

members of the trust’s governing board 

or their combined contributions 

constitute greater than 50% of the trust’s 

annual revenues, each will be required 

to file a Form T–1. 

6. Should itemization of substantial 

receipts and disbursements of the trust 

be required and, if so, what aggregate 

dollar value should trigger itemization? 

The Department proposed that 

itemization should be required for 

‘‘major disbursements’’ by the section 

3(l) trust. 67 FR 79284. The Department 

defined ‘‘major disbursements’’ for 

Form T–1 purposes as $10,000 or more. 

Thus, a union would report any payee 

who received $10,000 or more from the 

trust during the reporting period, the 

amount of the disbursement, its 

purpose, and other pertinent 

information about the transaction. Id. 

The comments on this proposal, in 

large part, mirrored the comments on 

the itemization required by the Form 

LM–2 proposal. Several comments 

stated that itemization was likely to 

impose a significant burden on unions 

with little corresponding benefit to 

members. Only a few unions, they 

argued, had accounting systems capable 

of capturing items for itemization and 

the number of entries alone for large 

trusts would be overwhelming. Other 

comments supported itemization of 

Form T–1 receipts and disbursements. 

In responding to these comments, the 

Department restated its commitment to 

itemization. The Department explained 

that itemization is integral to preventing 

circumvention or evasion of the 

reporting obligations imposed on unions 

and union officials. See, e.g., 68 FR 

58384–91, 58416–17. Moreover, by 

excepting from the reporting 

requirements unions with less than 

$250,000 in annual receipts, the 

Department significantly reduced the 

overall burden associated with the Form 

T–1. The Department observed that no 

comment suggested that section 3(l) 

trusts lacked the capacity to provide the 

information requested by the Form T–1. 

68 FR 58416. The Department 

acknowledged that the rule would 

require large section 3(l) trusts to 

itemize numerous entries. Id. The 

Department noted, however, that these 

trusts will have available to them 

bookkeeping and accounting software 

capable of collecting the information 

required to complete the form. Id. With 

regard to the itemization threshold of 

$10,000, the Department stated that a 

disbursement in such amount represents 

a substantial transaction of interest to 

union members. 68 FR 58414–15. The 

Department explained that the 

difference between the reporting 

threshold for itemized transactions 

under the Form LM–2 ($5,000) and the 

threshold under Form T–1 ($10,000) 

was appropriate because the finances of 

a trust are less likely to directly impact 

union members than the expenditures 

by the union itself. 68 FR 58417. 

Itemization is helpful in preventing 

circumvention or evasion of the Act’s 

reporting requirements. Among other 

requirements, Form T–1 requires a 

union to identify: 

• The names of all the trust’s officers 

and all employees making more than 

$10,000 in salary and allowances and all 

direct and indirect disbursements to 

them; 

• Disbursements to any individual or 

vendor that aggregate to $10,000 or more 

during a reporting period and provide 

for each of the vendors, their business 

address, and the purpose of the 

disbursements, and 

• Any loans made at favorable terms 

by the trust to the union’s officers or 

employees, the amount of the loan, and 

the terms of repayment. 

68 FR 58430–31 (2003). See also 68 FR 

58493 (officers); 68 FR 58495 

(employees). Where payments from a 

business that buys, sells or otherwise 

deals with a trust in which a labor 

union is interested are made to a union 

officer or employee or his or her spouse, 

or minor child, the LMRDA imposes on 

the union officer or employee a separate 

obligation to report such payments 

(Form LM–30, as required by 29 U.S.C. 

432). The itemization of trust payments 

of at least $10,000 also allows union 

members to determine whether any of 

the recipients of the trust’s payments are 

businesses in which a union official (or 

the official’s spouse or minor child) 

holds an interest, a circumstance that 

may also require a report to be filed by 

the union official (LM–30). Thus, the 

Form T–1 operates to deter a union 

official from evading this reporting 

obligation. 

To illustrate how the Form T–1 ties 

into the other reporting obligations 

under the Act, in addition to the 

examples in section D.1, above, consider 

an instance in which a trust identifies 

a $15,000 payment to a company for 

duplicating services. With this 

information, coupled with information 

about a union official’s ‘‘personal 

business’’ interests, the union member 

or the Department may discover 

whether the official has reported this 

payment on a Form LM–30. The same 

information might allow a union 

member to ascertain whether the trust 

and the union have used the same 

printing company and whether there 

was a pattern of payments by the trust 

and the union from which an inference 

could be drawn that duplicate payments 

were being made for the same services. 

Upon further inquiry into the details of 

the transactions, a member or the 

government may be able to determine 

whether the payments masked a 

kickback or other conflict-of-interest 

payment, and, as such, reveal an 

instance where the union, a union 

official, or an employer may have failed 

to comply with their reporting 

obligations under the Act. 

7. Should some unions be excepted 

from filing the Form T–1 if the trust 

already files a publicly-disclosed report, 

such as required by ERISA or other 

federal or state law, or if the union 

submits an audit of the trust’s finances? 

In the NPRM, the Department 

explained that its proposal did not 

require unions to file a report if a 

similar publicly available report already 

was filed with a government agency. 67 

FR 79285. The proposal identified the 

following exceptions: A Political Action 

Committee fund if reports on such funds 

are filed with a federal or state agency, 

a political organization for which 

reports are filed with the Internal 

Revenue Service pursuant to 26 U.S.C. 

527, or a fund described in sections 

302(c)(5) through (9) of the LMRA, 29 

U.S.C. 186(c)(5) through (9), or for a 

plan that filed complete annual 

financial reports, returns and schedules 

pursuant to the requirements of ERISA, 

29 U.S.C. 1023 and 29 CFR 2520.103–

1. Id. The proposal also provided that 

no separate report would be required if 

annual audits were made freely 

available on demand for inspection by 

interested persons under section 

302(c)(5)(B) of the LMRA, 29 U.S.C. 

186(c)(5)(B). Id. 

The 2003 rule revised some of the 

exceptions proposed. The Department 

clarified that no Form T–1 need be filed 

for any trust that met the first three 

exceptions just discussed. 68 FR 58413. 

With regard to the ERISA exception, as 

discussed above in connection with the 

first question, the Department explained 

that the exception was available only if 

the trust filed complete and timely Form 


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5500 reports. Id. With regard to the 

audit alternative, the Department 

explained that the audit must meet 

either the requirements of 29 CFR 

2520.103–1 (relating to annual reports 

and financial statements required to be 

filed under ERISA) or comparable 

standards described in the Form T–1 

instructions. 68 FR 58413–14. The 

Department explained that the 

standards in the instructions overlap 

partially with the ERISA standards, as 

adapted to serve the particular needs of 

the Department in administering the T–

1 rule. 68 FR 58414. The Department 

recognized that the audit option may 

not provide the same detail as the 

itemization required by the Form T–1, 

but that this was an acceptable trade off 

as a way to reduce the overall reporting 

burden on the union and the section 3(l) 

trust. 68 FR 58413–14. The final Form 

T–1 rule preserves the reporting 

exceptions and audit alternative 

provided under the 2003 rule. Under the 

audit alternative a labor organization 

need only complete the first page of the 

T–1 (items 1–15 and the signatures of 

the organizations’ officers) and submit a 

copy of an audit that meets all the 

following standards: 

• The audit is performed by an 

independent qualified public 

accountant, who after examining the 

financial statements and other books 

and records of the trust, as the 

accountant deems necessary, certifies 

that the trust’s financial statements are 

presented fairly in conformity with 

Generally Accepted Accounting 

Principles or Other Comprehensive 

Basis of Accounting. 

• The audit includes notes to the 

financial statements that disclose, for 

the preceding twelve-month period: 

• Losses, shortages, or other 

discrepancies in the trust’s finances; the 

acquisition or disposition of assets, 

other than by purchase or sale; 

• Liabilities and loans liquidated, 

reduced, or written off without the 

disbursement of cash; 

• Loans made to union officers or 

employees that were granted at more 

favorable terms than were available to 

others; and 

• Loans made to officers and 

employees that were liquidated, 

reduced, or written off. 

• The audit is accompanied by 

schedules that disclose, for the 

preceding twelve-month period: 

• A statement of the assets and 

liabilities of the trust, aggregated by 

categories and valued at current value, 

and the same data displayed in 

comparative form for the end of the 

previous fiscal year of the trust; and 

• A statement of trust receipts and 

disbursements aggregated by general 

sources and applications, which must 

include the names of the parties with 

which the trust engaged in $10,000 or 

more of commerce and the total of the 

transactions with each party. 

Under this final rule, the Department 

has provided unions with alternative 

approaches to meeting their disclosure 

obligations while at the same time 

ensuring that unions make an 

accounting of the funds in section 3(l) 

trusts, as they already do on the Form 

LM–2 for funds maintained in the 

unions’ own accounts. 

8. What if a section 3(l) trust refuses to 

provide the reporting union with the 

information required to complete the 

Form T–1? 

The Department’s proposal did not 

directly address the concern, later 

expressed in several comments, that a 

section 3(l) trust in which a union held 

a significant financial interest would 

refuse to provide the information 

needed to complete the Form T–1. 

Several comments expressed concern 

about a union’s liability for failure to 

file a timely report, given that the trust 

might refuse to provide the information 

and the union’s inability to compel its 

production. 68 FR 58417–18. In 

response, the Department acknowledged 

the possibility that there may be some 

instances in which a trust will not fully 

cooperate in providing timely 

information to the reporting union. 68 

FR 58418. The Department explained 

that unions are required to make a goodfaith effort to obtain timely information 

from a trust, adding that after such good 

faith effort, the Department would 

exercise any available investigative and 

other authority to assist the reporting 

union in obtaining the necessary 

information. Id. 

In this regard, it deserves emphasis 

that no comment suggested that an 

administrator of a section 3(l) trust had 

expressed an intention to withhold from 

a union information required to 

complete the Form T–1. And, although 

there were some comments that a trust 

would be bound by its own fiduciary 

obligations in determining whether to 

make the information available, there 

was no indication that a trust held the 

view that it would violate such duty by 

providing the information required by 

the form. In addition, where a union, 

alone or in combination with other 

unions, appoints or selects a majority of 

the trust’s board members, a majority of 

the board would then have an interest 

in disclosure, which, by all 

appearances, would result in the trust 

releasing the information necessary to 

meet the Form T–1 obligation either on 

its own initiative or by vote of the board 

members. Also, by all appearances, 

where a union’s contributions to the 

trust, alone or in combination with 

other unions, constitute greater than 

50% of the revenue of the trust for that 

fiscal year, the union or unions should 

have some control over whether the 

trust releases this information. For these 

reasons, the Department expects that 

trusts will routinely and voluntarily 

comply in providing such information 

to reporting unions and that any need 

for the Department to intercede will be 

rare. Nevertheless, the Department also 

reaffirms its intention to use its 

available investigatory authority to 

assist the reporting union to obtain 

information necessary to complete the 

Form T–1. 

9. What concerns about privacy or 

sensitive information are implicated by 

requiring the disclosure of information 

about the trust and how are these 

interests balanced with the right of 

members to obtain relevant financial 

information about their union? 

As noted, the Department invited 

general comments about its proposed 

reporting requirements for section 3(l) 

trusts. 67 FR 79285. Several labor 

organizations raised privacy concerns 

about the itemization requirement of the 

Form T–1; specifically, they identified 

the concern that the disclosure of the 

name and address of individuals 

receiving trust funds (as well as the 

date, purpose, and amount of the 

transfer) would be unwise and perhaps 

unlawful under federal privacy laws. 68 

FR 58417. Some comments 

recommended aggregating all 

disbursements as a way to protect the 

privacy of beneficiaries. While noting its 

concern that aggregating all 

disbursements would substantially 

reduce the amount and quality of the 

information reported on a Form T–1, the 

Department acknowledged the 

importance of ensuring personal 

privacy. Id. To achieve such protection, 

the Department modified the rule so as 

to permit a reporting union to choose 

not to disclose sensitive information 

about individuals; the modification 

allows a reporting union to withhold 

specific information if the union 

concludes that the disclosure of such 

information would inappropriately 

divulge private information. Id. The 

Form LM–2 also permits unions to 

withhold personal information in 

similar circumstances. Id. 

One comment questioned the wisdom 

of requiring the particular identification 

of any loans to officers, employees, or 

members that exceeded $250. 68 FR 


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58417. The comment suggested that in 

most cases such loans would be made 

only on customary, commercial terms 

and that, consequently, there would be 

little gained by disclosing this 

information. Any benefit from 

disclosure in these circumstances would 

be outweighed by opening the financial 

circumstances of union members and 

others to public inspection. The 

Department agreed that individual 

financial circumstances should be kept 

private. The Department explained that 

it had deleted the proposed schedule to 

the Form T–1 that would have collected 

information on individual loans. Id. The 

Department explained that the Form T–

1 instead was revised to contain a 

question asking the union to state 

whether the trust had loaned money to 

a union official on terms that are 

substantially more favorable than terms 

available to others, or has forgiven loans 

to officers or employees of the union 

during the reporting period. Id. The 

Form T–1 requirements, as crafted, meet 

the privacy concerns expressed in the 

comments. 

In response to a number of comments 

expressing concern that the disclosure 

of some financial information would 

impede the organizational and 

collective bargaining strategies of filing 

unions, the Department crafted a 

procedure to accommodate both these 

concerns and the countervailing interest 

of union members in obtaining financial 

information about their union’s 

finances. The procedure, applicable to 

both Form LM–2 and Form T–1 filers, 

allows unions to withhold such 

information so long as they comply with 

the specific conditions applicable to 

such information, including requests by 

union members for such information. 

The instructions published for Form 

LM–2 and Form T–1 are virtually 

identical on this point. See 68 FR 

58499–100 (LM–2) 68 FR 58534 (T–1). 

Although it seems much less likely that 

disaggregated information reported on 

the Form T–1 would raise the same 

concerns as information reported on the 

Form LM–2, the Department believes 

that it is prudent to extend the same 

option to Form T–1 filers. Thus, for the 

same reasons as articulated in the 

preamble to the 2003 rule (see 68 FR 

58386–88) and the instructions, the 

Department has adopted the same 

approach in today’s rule. In this regard, 

the Department notes that the regulation 

promulgated by the 2003 rule (see 68 FR 

58448, codified at 29 CFR 403.8(b)), as 

distinct from the forms and the 

instructions, only specifically referred 

to Form LM–2. To remedy this 

oversight, today’s rule adds a new 

regulatory provision comparable to 

section 403.8(b)(1), to clarify that the 

same treatment applies to the Form T–

1 filers. The only difference in the two 

provisions is that each addresses the 

distinct itemization thresholds for the 

two reports ($5,000 for Form LM–2 and 

$10,000 for Form T–1). 

10. When should the rule take effect? 

The Department proposed that unions 

should submit the Form T–1 to the 

Department within 90 days after the end 

of the trust’s fiscal year. 67 FR 79284. 

Comments were invited on alternative 

filing deadlines. Id. Several comments 

suggested that 90 days after the close of 

the trust’s fiscal year did not allow 

unions sufficient time to complete the 

Form T–1. The Department explained 

that, based on past experience with the 

trust and the union’s own records, 

unions likely would have information 

available to them that would enable 

them to know ahead of time whether a 

T–1 filing would be necessary. 68 FR 

58417. Moreover, none suggested that 

the trusts would be unable to provide 

the information within the necessary 

timeframe. 

The Department ultimately 

determined that a union should file the 

Form T–1 at the same time as it files the 

Form LM–2, rather than 90 days after 

the close of the trust’s fiscal year. 68 FR 

58418. Significantly, the Department 

explained that the union should file the 

Form T–1 based on the latest available 

information reported to the union by the 

trust or from a qualifying audit. Id. 

Thus, the Department explained that if 

a trust’s fiscal year ends on a different 

date than the reporting union’s fiscal 

year, the union will have the amount of 

time between the end of the trust’s most 

recent fiscal year and the end of the 

union’s own fiscal year, plus 90 days, to 

file the report. Id. 

The final Form T–1 rule will not take 

effect until 90 days from the date of this 

publication and will apply only to 

unions with fiscal years beginning on or 

after the rule’s effective date. A Form T–

1 covers a trust’s most recently 

concluded fiscal year, and a Form T–1 

is required only for trusts whose fiscal 

year begins on or after the effective date 

of this publication (90 days after 

publication). 

The final rule revises the Form T–1 

instructions to make plain that the Form 

T–1 should be filed at the same time 

that the union’s Form LM–2 is filed; it 

also makes plain that no Form T–1 is 

due until after the close of the trust’s 

first fiscal year that begins after the 

effective date of today’s rule. The 

instructions will restate this 

requirement and provide examples of its 

application. 

11. What assistance will the Department 

provide unions to assist them with their 

section 3(l) reporting obligation? 

This document, along with the 

preamble to the 2003 rule, the T–1 Form 

(unchanged by today’s rule), and the 

instructions, as revised, will be the 

authoritative source of information 

regarding the obligation of unions to file 

reports on section 3(l) trusts. 

Additionally, the Department will 

continue its substantial efforts to assist 

unions with their reporting obligations 

under the Act. The Department’s Form 

T–1-specific compliance assistance will 

include an overview of the reporting 

requirements; a schedule of Form T–1 

seminars for international, national, 

intermediate and local unions, and 

section 3(l) trust administrators 

conducted by OLMS offices throughout 

the country; an email list-serve to 

provide periodic updates to interested 

parties; and web-based materials that 

include frequently asked questions, a 

description of the Form T–1 registration 

process, and other topics of interest to 

unions and trust administrators. 

II. Changes to the Form T–1 Proposal 

As explained above, the Department 

has determined to narrow the scope of 

its proposal, as revised by its 2003 rule. 

While both the proposal and 2003 rule 

required any union meeting the 

threshold reporting requirements with 

an interest in a section 3(l) trust to file 

a Form T–1 unless it met specified 

‘‘audit’’ or ‘‘other reporting’’ exceptions, 

today’s rule limits the filing to those 

unions that, alone or with other unions, 

selected or appointed the majority of the 

members of a section 3(l) trust’s 

governing board or contributed, alone or 

in combination with other unions, more 

than 50% of the trust’s revenue during 

the trust’s plan year ending during the 

union’s annual reporting period. For the 

purpose of determining whether a union 

selected the majority of the members of 

a trust’s governing board, a member 

selected solely by one or more members 

who were themselves selected solely by 

a union will be considered a unionselected member. 

Only a few paragraphs of text are 

required to revise the Form T–1 

instructions published at 68 FR 58524–

38: a revised first paragraph under 

section I (‘‘Who Must File’’) and a new 

paragraph to be added to section II 

(‘‘When to File’’). The form itself is 

unchanged. The revised language to 

section I of the instructions follows: 


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57728 Federal Register / Vol. 71, No. 189 / Friday, September 29, 2006 / Rules and Regulations 

I. Who Must File 

Every labor organization subject to the 

Labor-Management Reporting and Disclosure 

Act, as amended (LMRDA), the Civil Service 

Reform Act (CSRA), or the Foreign Service 

Act (FSA), with total annual receipts of 

$250,000 or more (‘‘union’’), must file Form 

T–1 each year for each trust if the following 

conditions exist: 

• The trust is a trust defined by section 3(l) 

of the LMRDA, that is, the trust is a trust or 

other fund or organization (1) that was 

created or established by the union or the 

union appoints or selects a member to the 

trust’s governing board; and (2) the trust has 

as a primary purpose to provide benefits to 

the members of the union or their 

beneficiaries (29 U.S.C. 402(l)); and 

• The union’s financial contribution to the 

trust, a contribution made as a result of a 

collective bargaining agreement to which the 

union is a party, or a contribution otherwise 

made on the union’s behalf, was $10,000 or 

more during the trust’s fiscal year and the 

trust had $250,000 or more in annual 

receipts; and either 

• The union, alone or in combination with 

other unions, appoints or selects a majority 

of the members of the trust’s governing 

board; or 

• The union’s contributions to the trust, 

alone or in combination with other unions, 

represent greater than 50% of the trust’s 

revenues during the one-year reporting 

period (contributions by an employer on 

behalf of the union’s members as required by 

a collective bargaining agreement are 

considered to be contributions of the union 

as are any contributions otherwise made on 

the union’s behalf). 

No Form T–1 should be filed for any trust 

that meets the statutory definition of a labor 

organization and already files a Form LM–2, 

LM–3, or LM–4, nor should a report be filed 

for any entity that the LMRDA exempts from 

reporting. No separate report need be filed for 

Political Action Committee (PAC) funds if 

publicly available reports on the PAC funds 

are filed with a Federal or state agency, or for 

a political organization for which reports are 

filed with the Internal Revenue Service 

pursuant to 26 U.S.C. 527. No separate report 

is required for an employee benefit plan that 

filed a complete and timely annual report 

pursuant to the requirements of the 

Employee Retirement Income Security Act of 

1974 (ERISA), 29 U.S.C. 1023, 1024(a), and 

1030, and 29 CFR 2520.103–1, for a plan year 

ending during the reporting period of the 

union. A notice filed with the Secretary of 

Labor pursuant to an exemption from 

reporting and disclosure, however, does not 

constitute a complete annual financial report. 

An abbreviated report may be filed for any 

covered trust or trust fund for which an 

independent audit has been conducted, in 

accordance with the standards of section 29 

CFR 2520.103–1, as discussed in the next 

paragraph [of the instructions]. 

The quoted language (without italics 

and bracketed material) appears 

verbatim in the revised Form T–1 

instructions. To highlight the limited 

reach of the reporting obligation, a 

shortened version is included as part of 

the Department’s financial reporting 

regulations (to be codified at 29 CFR 

403.2(d)). 

A new paragraph will be added to the 

beginning of section II of the 

instructions to clarify when a union 

must file a Form T–1. The clarification 

replaces the first paragraph of section II 

as published in the 2003 final rule. See 

68 FR 58525. The new paragraph 

ensures that unions recognize that the 

Form T–1 must be filed at the same time 

that they file their Form LM–2. The new 

paragraph reads: 

Form T–1 must be filed within 90 days of 

the end of the labor organization’s fiscal year. 

The Form T–1 shall cover the trust’s most 

recent fiscal year, i.e., the fiscal year ending 

on or before the closing date of the union’s 

own fiscal year. The penalties for 

delinquency are described in Section V 

(Officer Responsibilities and Penalties) of 

these instructions. 

Filers should note that they have 

comparable lead time to prepare their 

initial Form T–1 as they were provided 

by the 2003 rule. [The following 

assumes that this rule is published on 

October 1, 2006 and becomes effective 

January 1, 2007.] 

No Form T–1 is due for any trust 

whose fiscal year began before January 

1, 2007, the effective date of the Form 

T–1 rule. Thus, no union is required to 

file a Form T–1 until at least March 31, 

2008. As the examples below 

demonstrate, the union’s obligation to 

file its first Form T–1 depends primarily 

on the date on which the trust’s fiscal 

year begins. No Form T–1 is due until 

sometime after the close of the trust’s 

first fiscal year that begins on or after 

the Form T–1 rule takes effect, January 

1, 2007. 

• If a union’s fiscal year runs from the 

effective date of the Form T–1 rule, 

January 1, 2007, until December 31, 

2007, and the trust’s fiscal year also 

runs from those same dates, a Form T–

1 would be due on March 31, 2008. This 

date is 90 days after the close of the 

union’s fiscal year. 

• If both the union’s and the trust’s 

fiscal years run from October 1, 2006, to 

September 30, 2007, the union’s first 

Form T–1 would not be due until 

December 29, 2008. This date is 90 days 

after the close of the trust’s fiscal year 

that began on October 1, 2007. Because 

the Form T–1 rule did not take effect 

until January 1, 2007, the trust’s first 

fiscal year covered by the rule closed on 

September 30, 2008. 

• If a union’s fiscal year runs from 

January 1, 2007, to December 31, 2007, 

and the trust’s fiscal year runs from 

April 1, 2007, to March 31, 2008 (the 

first fiscal year that began on or after the 

effective date of the Form T–1 rule) , the 

union’s first Form T–1 would not be due 

until March 31, 2009. This date is 90 

days after the close of the union’s fiscal 

year on December 31, 2008. 

III. Regulatory Procedures 

A. Executive Order 12866 

This final rule has been drafted and 

reviewed in accordance with Executive 

Order 12866. The Department has 

determined that this final rule is not an 

‘‘economically significant’’’ regulatory 

action under section 3(f)(1) of Executive 

Order 12866. Because compliance with 

the rule can be achieved at a reasonable 

cost to covered labor organizations and 

trusts in which they are interested (as 

defined by 29 U.S.C. 402(l)), the rule is 

not likely to: (1) Have an annual effect 

on the economy of $100 million or more 

or adversely affect in a material way the 

economy, a sector of the economy, 

productivity, competition, jobs, the 

environment, public health or safety, or 

state, local, or tribal governments or 

communities; (2) create a serious 

inconsistency or otherwise interfere 

with an action taken or planned by 

another agency; (3) materially alter the 

budgetary impact of entitlements, 

grants, user fees, or loan programs or the 

rights and obligations of recipients 

thereof; or (4) raise novel legal or policy 

issues. As a result, the Department has 

concluded that a full economic impact 

and cost/benefit analysis is not required 

for the rule under section 6(a)(3) of the 

Order. Because of its importance to the 

public, however, the rule was treated as 

a significant regulatory action and was 

reviewed by the Office of Management 

and Budget. 

Based on the criteria set forth in the 

preamble and discussed in further detail 

below, the Department estimates that 

1,664 Form T–1s will be filed for each 

of the first three years after the effective 

date. The Department estimates the total 

cost of the final rule to be $3.3 million 

in the first year, $1.6 million in the 

second year, and $1.4 million in the 

third year (see the following Paperwork 

Reduction Act section for a description 

of how the universe of filers and 

resulting costs were estimated). The 

three-year total average cost of the rule 

is $2.1 million per year. 

The Department believes that there 

are substantial unquantifiable benefits 

resulting from the greater transparency 

of labor organizations’ financial 

information to their members, the 

public, and the Department, including 

the benefits of deterring fraud or 

facilitating its detection. 


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B. Small Business Regulatory 

Enforcement Fairness Act 

The Department has concluded that 

this final rule is not a ‘‘major’’ rule 

under the Small Business Regulatory 

Enforcement Fairness Act of 1996 (5 

U.S.C. 801 et seq.). It will not likely 

result in (1) an annual effect on the 

economy of $100 million or more; (2) a 

major increase in costs or prices for 

consumers, individual industries, 

federal, state or local government 

agencies, or geographic regions; or (3) 

significant adverse effects on 

competition, employment, investment, 

productivity, innovation, or on the 

ability of United States-based 

enterprises to compete with foreignbased enterprises in domestic or export 

markets. 

C. Executive Order 13132: Federalism 

The Department has reviewed this 

final rule in accordance with Executive 

Order 13132, regarding federalism, and 

has determined that the rule does not 

have ‘‘federalism implications.’’ The 

economic effects of the rule are not 

substantial, and it has no ‘‘direct effects 

on the States, on the relationship 

between the national government and 

the States, or on the distribution of 

power and responsibilities among the 

various levels of government.’’

D. Regulatory Flexibility Act 

The Department’s NPRM in this 

rulemaking contained initial Regulatory 

Flexibility Act and Paperwork 

Reduction Act analyses, which were 

also submitted to, and approved by, 

OMB. Based upon careful consideration 

of the comments and the changes made 

to the Department’s proposal in this 

final rule, the Department has made 

significant adjustments to its burden 

estimates. The costs to the Department 

for administering the reporting 

requirements of the LMRDA also were 

adjusted. These adjustments are 

discussed in the PRA analysis, Section 

F. See also discussion at 68 FR 58428. 

The Regulatory Flexibility Act of 

1980, 5 U.S.C. 601 et seq., requires 

agencies to prepare regulatory flexibility 

analyses, and to develop alternatives 

wherever possible, in drafting 

regulations that will have a significant 

impact on a substantial number of small 

entities. The Small Business 

Administration (‘‘SBA’’) determined, in 

a regulation that became effective on 

October 1, 2000, that the maximum 

annual receipts allowed for a labor 

union or similar labor organization and 

its affiliates to be considered a small 

organization or entity under section 

601(4), (6) of the Regulatory Flexibility 

Act was $5.0 million. 13 CFR 121.201 

(2002) [Code Listing 813930]. This 

amount was adjusted for inflation to 

$6.5 million by a regulation that became 

effective on January 5, 2006. 13 CFR 

121.201 (2006). Accordingly, the 

following analysis assesses the impact 

of these regulations on small entities as 

defined by the applicable SBA size 

standards. 

1. Statement of the Need for, and 

Objectives of, the Rule 

The following is a summary of the 

need for and objectives of the rule. A 

more complete discussion is found in 

the preamble. 

The objective of this rule is to 

increase the transparency of union 

financial reporting by revising the 

LMRDA disclosure forms to enable 

workers to be responsible, informed, 

and effective participants in the 

governance of their unions; discourage 

embezzlement and financial 

mismanagement; prevent the 

circumvention or evasion of the 

statutory reporting requirements; and 

strengthen the effective and efficient 

enforcement of the Act by the 

Department. The Form T–1 is designed 

to close a reporting gap where union 

finances in relation to LMRDA section 

3(l) trusts were not disclosed to 

members, the public, or the Department. 

One of the Act’s primary reporting 

obligations (Forms LM–2, LM–3, and 

LM–4) applies to labor organizations, as 

institutions; other important reporting 

obligations apply to officers and 

employees of labor organizations (Form 

LM–30), requiring them to report any 

conflicts between their personal 

financial interests and the duty they 

owe to the union they serve, and to 

employers and labor relations 

consultants who must report payments 

to labor organizations and their 

representatives (Form LM–10). See 29 

U.S.C. 432; 29 U.S.C. 433. Requiring 

unions to report the information 

required by the Form T–1 final rule 

provides an essential check for union 

members and the Department to ensure 

that unions, union officials, and 

employers are accurately and 

completely fulfilling their reporting 

duties under the Act, obligations that 

can easily be ignored without fear of 

detection if reports relating to trusts are 

not required. 

Under the Department’s former rule, a 

reporting obligation concerning section 

3(l) trusts would arise only if the trust 

was a ‘‘subsidiary’’ of the reporting 

union and met other requirements 

previously set by the Department (see 

Form LM–2 instructions in effect prior 

to the 2003 final rule). See also 68 FR 

58413. Thus, the former rule, which was 

crafted shortly after the Act’s enactment, 

required reporting by only a portion of 

the unions that contributed to section 

3(l) trusts. During the intervening 

decades, the financial activities of 

individuals and organizations have 

increased exponentially in scope, 

complexity, and interdependence. 67 FR 

79280–81. For example, many unions 

manage benefit plans for their members, 

maintain close business relationships 

with financial service providers such as 

insurance companies and investment 

firms, operate revenue-producing 

subsidiaries, and participate in 

foundations and charitable activities. 67 

FR 79280. The complexity of union 

financial practices, including business 

relationships with outside firms and 

vendors, increases the likelihood that 

union officers and employees may have 

interests in, or receive income from, 

these businesses. As more labor 

organizations conduct their financial 

activities through sophisticated trusts, 

increased numbers of businesses have 

commercial relationships with such 

trusts, creating financial opportunities 

for union officers and employees who 

may operate, receive income from, or 

hold an interest in such businesses. In 

addition, employers also have fostered 

multi-faceted business interests, 

creating further opportunities for 

financial relationships between unions, 

union officials, employers, and other 

entities, including section 3(l) trusts. 

Such trusts ‘‘pose the same 

transparency challenges as ‘off-thebooks’ accounting procedures in the 

corporate setting: Large scale, 

potentially unattractive financial 

transactions can be shielded from public 

disclosure and accountability through 

artificial structures, classification and 

organizations.’’ 67 FR 79282. The 

Department’s former rule required 

unions to report on only a subset of 

such trusts, which resulted in a gap in 

the reporting requirements on these 

trusts, where, were the union to retain 

the funds, these funds would appear on 

the union’s Form LM–2; however, 

despite the close relationship between 

the union and the trust, and the purpose 

of the funds to benefit the members, 

once such funds leave the union, there 

is no accountability under the current 

rule. Thus, Form T–1 essentially follows 

union funds that remain in closely 

connected trusts, but which would 

otherwise go unreported. As a result of 

non-disclosure of these funds, members 

have long been denied important 

information about union funds that 

were being directed to other entities, 

ostensibly for the members’ benefit, 


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57730 Federal Register / Vol. 71, No. 189 / Friday, September 29, 2006 / Rules and Regulations 

such as joint funds administered by a 

union and an employer pursuant to a 

collective bargaining agreement, 

educational or training institutions, 

credit unions, and redevelopment or 

investment groups. See 67 FR 79285. 

The Form T–1 is necessary to close this 

gap, prevent certain trusts from being 

used to evade the Title II reporting 

requirements, and provide union 

members with information about 

financial transactions involving a 

significant amount of money relative to 

the union’s overall financial operations 

and other reportable transactions. 68 FR 

58415 (2003). The purpose of the 

LMRDA disclosure requirements is to 

prevent financial malfeasance of union 

money. 67 FR 79282–83. This purpose 

is demonstrably frustrated when 

existing reporting obligations fail to 

disclose, for example, opportunities for 

fraud. (Examples of situations where 

money in section 3(l) trusts was being 

used to circumvent or evade the 

reporting requirements can be found in 

the preamble and at 67 FR 79283.) 

As explained in the proposal, 

additional trust reporting is necessary to 

ensure, as intended by Congress, the full 

and comprehensive reporting of a 

union’s financial condition and 

operations, including a full accounting 

to union members from whose work the 

payments were earned. 67 FR 79282–83. 

The rule will prevent circumvention 

and evasion of these reporting 

requirements by providing union 

members with financial information 

concerning trusts that their unions have 

helped select the directors or provided 

the majority of the funds. The Form T–

1 will also identify the trust’s significant 

vendors and service providers. A union 

member who is aware that a union 

official has a financial relationship with 

one or more of these businesses will be 

able to determine whether the business 

and the union official have made 

required reports. 

2. Number of Small Entities Covered 

Under the Rule 

The impact of this final rule will be 

on the largest labor organizations, 

defined as those that have $250,000 or 

more in annual receipts, which are 

interested in a trust for purposes of 

section 3(l) of the LMRDA. There are 

approximately 3,827 labor organizations 

with $250,000 or more in receipts, 

which amounts to 18% of all labor 

organizations covered by the LMRDA. 

Based on fiscal year 2005 LM–2 filings, 

the Department estimates that 3,508 of 

these unions, or 92% of unions with 

receipts of $250,000 or more, are 

considered small under the current SBA 

standard (annual receipts less than $6.5 

million). These unions have average 

annual receipts of approximately $1.1 

million and an average of 13 officers 

and 6 employees. From this universe of 

potential filers (those unions interested 

in a trust under Section 3(l) of the 

LMRDA which meets the $250,000 

receipt threshold and other 

requirements as outlined above), the 

Department expects approximately 

1,664 Form T–1 reports. These estimates 

are derived from the best available 

information as noted below in the 

Paperwork Reduction Act analysis, 

Overview of Form T–1. 

3. Reporting, Recordkeeping and Other 

Compliance Requirements of the Rule 

This final rule is not expected to have 

a significant economic impact on a 

substantial number of small entities. 

The LMRDA is primarily a reporting 

and disclosure statute. Accordingly, the 

primary economic impact of the final 

rule will be the cost of obtaining and 

reporting required information. 

In the 2003 final rule, the Department 

estimated that 2,769 Form T–1s would 

be filed annually based on a three-tier 

analysis of unions organized by receipt 

size. 68 FR 58435. In response to the 

opinion of the D.C. Circuit in AFL–CIO 

v. Chao, the Department has imposed a 

more restrictive description of the labor 

organizations that must file Form T–1, 

thereby effectively decreasing the 

overall number of labor organizations 

that will file Form T–1. Based on these 

restrictions, the Department has 

reconstructed the three-tier analysis in 

estimating the burdens and costs of 

Form T–1. (A more detailed discussion 

of the methodology for estimating 

burden hours and costs for the From T–

1 appears below at section F.4.) First, it 

was assumed that 10% of the 1,055 

labor organizations with annual receipts 

of $250,000 to $499,999.99 (Tier 1) 

would file one Form T–1. Second, it was 

assumed that 25% of the 2,723 labor 

organizations with annual receipts of 

$500,000 to $49.9 million (Tier 2) would 

file on average two Form T–1s. Third, it 

was assumed that 100% of the 49 labor 

organizations with annual receipts of 

$50 million or more (Tier 3) would file 

an average of four Form T–1 reports 

each (see Table 1 below). The 

implementation of a tier system is based 

on the underlying assumption that the 

size of a union, as measured by the 

amount of its annual receipts, will affect 

its recordkeeping and reporting burden 

for Form T–1. Larger unions have more 

trusts to account for: The three tiers are 

constructed to differentiate these 

relative burdens among those unions 

with $250,000 or more in receipts 68 FR 

58433. These numbers represent an 

estimated decline from the 2003 

estimates that: 15% of Tier 1 labor 

organizations would file on average 1 

Form T–1; 35% of Tier 2 labor 

organizations would file on average 2.6 

Form T–1s; and 100% of Tier 3 labor 

organizations would file on average 5 

Form T–1s. 68 FR 58444. 

For each of the three tiers, the 

Department estimated burden hours for 

nonrecurring (first year) recordkeeping 

and reporting requirements, the 

recurring recordkeeping and reporting 

burden hours, and a three-year annual 

average for the nonrecurring and 

recurring burden hours similar to the 

way it had estimated the burden hours 

for revised Form LM–2 filers 68 FR 

58436. 

As explained below, the Department 

estimates the average reporting and 

recordkeeping burden for Form T–1 to 

be 71.7 hours per respondent in the first 

year (including non-recurring 

implementation costs), 33.9 hours per 

respondent in the second year, and 30.4 

hours per respondent in the third year 

(see Table 3). The Department estimates 

the total annual burden hours for Form 

T–1 respondents to be approximately 

119,000 hours in the first year, 56,000 

hours in the second year, and 51,000 

hours in the third year (see Table 3). 

In arriving at these totals, the 

Department estimates the initial burden 

required for preparing to complete the 

Form T–1 for all three tiers as follows: 

2.4 hours to provide the Form T–1 

requirements to the trust, 4.3 hours for 

reviewing the new form and 

instructions, and 8.0 non-recurring (first 

year) hours for installing, testing, and 

reviewing the OLMS provided software. 

The overall time required to read and 

review the form and instructions is 

estimated to decline to 2.0 hours the 

second year and 1.0 hour the third year 

as unions and trusts become more 

familiar with the revised form. 

The Department estimates the average 

reporting burden required to complete 

pages one and two of the Form T–1 for 

each of the three tiers to be 6.1 hours 

and the average recordkeeping burden 

associated with the items on pages one 

and two to be 1.6 hours. These estimates 

are proportionally based on the 

recordkeeping and reporting burden 

estimates for the first two pages of the 

current Form LM–4, which are very 

similar to the first two pages of Form T–

1. The first two pages of Form LM–4 

have 21 items (8 questions that identify 

the union; four yes/no questions; seven 

summary numbers for maximum 

amount of bonding, number of 

members, total assets, liabilities, 

receipts, and disbursements, and total 

disbursements to officers; and an 


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Federal Register / Vol. 71, No. 189 / Friday, September 29, 2006 / Rules and Regulations 57731 

additional information item). The first 

two pages of Form T–1 have 25 items 

(14 questions that identify the union 

and trust; six yes/no questions; four 

summary numbers for total assets, 

liabilities, receipts, and disbursements; 

and an additional information item). For 

comparison, Form LM–3 has 56 items 

with two statements on assets, 

liabilities, receipts, and disbursements. 

For the Form T–1 receipt and 

disbursement schedules, the 

Department estimates that on average, 

respondents will take 9.8 hours (of 

nonrecurring burden) to develop, test, 

review, and document accounting 

software queries; design query reports; 

prepare a download methodology; and 

train personnel for each of the 

schedules. Further, the Department also 

estimates that on average Form T–1 

respondents will take 1.2 (recurring) 

hours to prepare and transmit the 

receipts schedule and 1.4 hours for the 

disbursements schedule. The 

Department also estimates that on 

average, Form T–1 respondents will take 

8.3 hours (recurring) of recordkeeping 

burden for each schedule to maintain 

the additional information required by 

the final rule. 

For the Form T–1 schedule of 

disbursements to officers and employees 

of the trust the Department estimates 

that it will take respondents an average 

of 2.8 hours (of nonrecurring burden) to 

develop, test, review, and document 

accounting software queries; design 

query reports; prepare a download 

methodology; and train personnel. 

Further, the Department estimates it 

will take on average 0.8 hours to prepare 

and transmit the schedule. 

The Department also estimates that it 

will take 2.0 hours for the trust to 

review Form T–1 and 1.0 hours for this 

information to be sent to the Form LM–

2 filer. In addition, the Department 

estimates that the union president and 

secretary-treasurer will take 4.0 hours to 

review and sign the form. The time for 

the president and secretary-treasurer to 

review and sign the form declines to 2.0 

hours the second year and 1.0 hour the 

third year as they become more familiar 

with the form. 

The Department estimates the average 

annual cost for Form T–1 to be $1,986 

per respondent in the first year 

(including non-recurring 

implementation costs), $934 per 

respondent in the second year, and $838 

per respondent in the third year (see 

Table 4). The Department also estimates 

the total annual cost to respondents for 

Form T–1 to be $3.3 million in the first 

year, $1.6 million in the second year, 

and $1.4 million in the third year (see 

Table 4). 

The cost estimates are based on wage 

rate data obtained from the 

Department’s Bureau of Labor Statistics 

(‘‘BLS’’) 2004 National Compensation 

Survey for personnel employed in 

service industries (i.e., accountant, 

bookkeeper, etc.) and adjusted to be 

total compensation estimates based on 

the BLS Employer Cost data. The 

estimates used for salaries of labor 

organization officers and employees are 

obtained from the annual financial 

reports filed with OLMS and are also 

adjusted to be total compensation 

estimates. 

These expenses are not expected to 

have a substantial impact on the 3,508 

unions considered to be small by SBA 

standards because they amount to only 

0.1% of each of these unions’ average 

annual receipts over three years ($1,253 

[three-year average cost per respondent] 

/ $1.1 million [average annual receipts]). 

Further, the final rule will apply to 

3,508 unions that meet the SBA 

standard for small entities, or just 16% 

of all unions with annual receipts of less 

than $6.5 million that must file an 

annual financial report under title II of 

the LMRDA. Even fewer will incur any 

actual costs as not all unions with 

$250,000 or more in receipts will be 

required to file Form T–1 as other 

requirements must be met. Therefore, 

the Department has determined that the 

final rule does not have a significant 

impact on a substantial number of small 

entities. 

4. Steps Taken To Minimize the Impact 

on Small Entities 

Only unions with receipts of $250,000 

or more that are ‘‘interested’’ in a trust 

for purposes of the LMRDA will be 

required to file Form T–1. The NPRM 

tied the Form T–1 to the revised Form 

LM–2 and required those unions with 

receipts of $200,000 or more to file the 

revised Form LM–2 and Form T–1 for a 

section 3(1) trust. 67 FR 79820. The 

Department, in response to comments 

received from the public, raised the 

Form LM–2 and Form T–1 reporting 

threshold to $250,000. 68 FR 58383. 

Raising the threshold for filing a Form 

LM–2 from $200,000 to $250,000 

resulted in 501 of the smallest labor 

organizations previously required to file 

a Form LM–2 to no longer be required 

to file Form LM–2. The impact on Form 

T–1 is that these 501 smallest labor 

organizations likewise are not required 

to file Form T–1. Furthermore, the 

union need only file a Form T–1 for 

trusts which have $250,000 or more in 

annual receipts thus further reducing 

the impact on small entities. 

The Department is also allowing for 

alternative acceptable filing 

requirements. Providing alternative 

acceptable filing requirements for those 

unions that would otherwise file Form 

T–1 is aimed at promoting disclosure 

while reducing the recordkeeping and 

reporting burdens for unions with trusts 

that are already subject to other 

disclosure requirements. Specifically, 

no Form T–1 will be required if the trust 

files a report pursuant to 26 U.S.C. 527, 

or pursuant to the requirements of 

ERISA, 29 U.S.C. 1023, or if the 

organization files publicly available 

reports with a Federal or state agency as 

a Political Action Committee (‘‘PAC’’). 

Additionally, a labor organization may 

substitute an audit that meets the 

criteria set forth in the Form T–1 

instructions for the financial 

information otherwise reported on a 

Form T–1 for a qualifying trust. 

The instructions for Form T–1 

provide examples and guidance on how 

to complete the report and maintain 

records, and OLMS staff will provide 

compliance assistance for any questions 

or difficulties that may arise in 

completing the form or using the 

reporting software. A help desk is 

staffed during normal business hours 

and can be reached by calling a toll-free 

telephone number: 1–866–4–USA–DOL 

(1–800–487–2365). 

E. Unfunded Mandates Reform 

For purposes of the Unfunded 

Mandates Reform Act of 1995, this rule 

does not include a federal mandate that 

might result in increased expenditures 

by state, local, and tribal governments, 

or increased expenditures by the private 

sector of more than $100 million in any 

one year. 

F. Paperwork Reduction Act 

This statement is prepared in 

accordance with the Paperwork 

Reduction Act of 1995, 44 U.S.C. 3501 

(‘‘PRA’’). See 5 CFR 1320.9. As 

discussed in the preamble to this final 

rule and the analysis that follows, the 

rule implements an information 

collection that meets the requirements 

of the PRA in that: (1) The information 

collection has practical utility to labor 

organizations, their members, other 

members of the public, and the 

Department; (2) the rule does not 

require the collection of information 

that is duplicative of other reasonably 

accessible information; (3) the 

provisions reduce to the extent 

practicable and appropriate the burden 

on unions that must provide the 

information, including small unions; (4) 

the form, instructions, and explanatory 

information in the preamble are written 

in plain language that will be 

understandable by reporting unions; (5) 


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the disclosure requirements are 

implemented in ways consistent and 

compatible, to the maximum extent 

practicable, with the existing reporting 

and recordkeeping practices of unions 

that must comply with them; (6) this 

preamble informs unions of the reasons 

that the information will be collected, 

the way in which it will be used, the 

Department’s estimate of the average 

burden of compliance, which is 

mandatory, the fact that all information 

collected will be made public, and the 

fact that they need not respond unless 

the form displays a currently valid OMB 

control number; (7) the Department has 

explained its plans for the efficient and 

effective management and use of the 

information to be collected, to enhance 

its utility to the Department and the 

public; (8) the Department has 

explained why the method of collecting 

information is ‘‘appropriate to the 

purpose for which the information is to 

be collected’’; and (9) the changes 

implemented by this rule make 

extensive, appropriate use of 

information technology ‘‘to reduce 

burden and improve data quality, 

agency efficiency and responsiveness to 

the public.’’ See 5 CFR 1320.9; 44 U.S.C. 

3506(c). 

The Department’s NPRM in this 

rulemaking contained initial Regulatory 

Flexibility Act and PRA analyses, which 

were also submitted to, and approved 

by, OMB. Based upon careful 

consideration of the comments and the 

changes made to the Department’s 

proposal in this final rule, the 

Department has made significant 

adjustments to its burden estimates. The 

costs to the Department for 

administering the reporting 

requirements of the LMRDA also were 

adjusted. Nearly all of the comments 

addressing the paperwork burden 

received in the course of this 

rulemaking were directed at the 

revisions being made to Form LM–2. 

Some comments, however, did apply 

to the Form T–1. These were largely 

supportive of the Department’s effort to 

specifically estimate the burden hours 

associated with the unions’ compliance 

with the proposal. The organization, 

however, suggested that the burden 

estimates could be improved if the 

Department capitalized its estimates of 

costs and provided additional 

documentation of the Department’s own 

costs associated with the rule. Although 

capitalization would be a reasonable 

alternative to the direct cost approach 

used in this rulemaking, the Department 

believes that averaging the costs over 

the first three years, as the Department 

has done here, yields approximately the 

same result in estimating burden. 

Moreover, in this rulemaking, there was 

relatively little to be capitalized. Only 

the computer equipment and software 

and the one-time labor costs could be 

considered for capitalization. In its 

analysis, the Department has assumed 

that most of the computer equipment 

and software would be purchased for 

normal business operations. The 

minimal additional costs associated 

with the final rule have been allocated 

in the first year. This same procedure 

was used for the one-time labor costs. 

While the procedure used by DOL does 

not include any ‘‘opportunity costs’’ for 

capital (e.g., interest charges), DOL 

believes that by using, in effect, a threeyear life cycle for all such costs it has 

reasonably estimated the burden. 

The commenter estimated the average 

burden associated with the 

Department’s proposal, per union per 

year, at about 180 hours. In reaching its 

conclusions, it assumed that completing 

the Form LM–2 and the Form T–1 

would pose an equal burden on filers; 

therefore, the combined estimate for 

completing both forms was 360 hours. 

Based on this assumption, the 

commenter broke down its estimate for 

a single form as follows: Install new 

software, 4 hours; design/adjust report 

forms and format structures, 72 hours; 

modify existing accounting systems, 32 

hours; incorporate electronic signatures, 

16 hours, systems testing, 24 hours, and 

employee training, 32 hours (8 hours × 

4 employees). However, the Department 

disagrees with the assumption that 

Form LM–2 and Form T–1 pose an 

equal burden on filers as Form T–1 

requires substantially less information 

than Form LM–2. For example, Form T–

1, using three schedules, requires 

itemization of receipts, disbursements, 

and disbursements to officers and 

employees of the trust; meanwhile, 

Form LM–2 requires itemization of 

information in twenty schedules in 

addition to two statements, which 

include a total of 68 individual 

questions, pertaining only to the union’s 

assets and liabilities. Further, Form LM–

2 filers must itemize on these schedules 

every transaction valued at $5,000 or 

higher; Form T–1 filers need only 

itemize for transactions valued at 

$10,000 or higher. 

To compute the compensation costs 

associated with these tasks, the 

commenter used $27.80 as a ‘‘fully 

loaded wage rate.’’ It also noted that the 

Department’s analysis did not 

appropriately recognize that the 

Department’s proposal would have an 

impact beyond the bookkeeping and 

accounting staff. Id. 8. Commenter noted 

that the rule likely would affect the 

manner by which union staff document 

or record their activities, and that such 

costs, though minimal on a transaction 

basis, will have a measurable cost in the 

aggregate. Id. The Department has 

considered such costs in its analysis of 

the final rule. As discussed below, the 

Department has provided estimates to 

account for additional union and trust 

personnel as well as outside 

independent accountants. 

Pursuant to the PRA, the information 

collection requirements contained in 

this final rule have been submitted to 

OMB for approval (1215–0188). Within 

30 days of the date of publication of this 

final rule, you may direct comments by 

fax (202–395–6974) to: Desk Officer for 

the Department of Labor/ESA, Office of 

Management and Budget. The Form T–

1 and its instructions, which are 

modified to reflect the new filing 

criteria, are published as an appendix to 

this final rule. 

1. Summary 

This final rule implements the Form 

T–1 Trust Annual Report required to be 

filed by the largest labor organizations 

for trusts in which they are interested, 

under conditions prescribed by the 

Secretary of Labor. See 29 U.S.C. 402(l); 

431(b); 438. 

As discussed in the preamble, 

members have long been denied 

important information about union 

funds that were being directed to other 

entities, ostensibly for the members’

benefit, such as joint funds 

administered by a union and an 

employer pursuant to a collective 

bargaining agreement, educational or 

training institutions, credit unions, and 

redevelopment or investment groups. 

The Form T–1 is necessary to close this 

gap, prevent certain trusts from being 

used to evade the Title II reporting 

requirements, and provide union 

members with information about 

financial transactions involving a 

significant amount of money relative to 

the union’s overall financial operations 

and other reportable transactions. Trust 

reporting is necessary to ensure, as 

intended by Congress, the full and 

comprehensive reporting of a union’s 

financial condition and operations, 

including a full accounting to union 

members whose work obtained the 

payments to the trust. It is also 

necessary to prevent circumvention and 

evasion of the reporting requirements 

imposed on officers and employees of 

unions and on employers. 

The form is designed to take 

advantage of technology that makes it 

possible to increase the detail of 

information that is required to be 

reported, while at the same time making 

it easier to file and publish the contents 


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of the reports. Union members thus will 

be able to obtain a more accurate and 

complete picture of their union’s 

financial condition and operations 

without imposing an unwarranted 

burden on respondents. Supporting 

documentation need not be submitted 

with the forms, but labor organizations 

are required, pursuant to the LMRDA, to 

maintain, assemble, and produce such 

documentation in the event of an 

inquiry from a union member or an 

audit by an OLMS investigator. 

The Department’s NPRM in this 

rulemaking contained an initial PRA 

analysis, which was also submitted to, 

and approved by, OMB. Based upon 

careful consideration of the changes 

made to the Department’s proposal in 

this final rule, the Department made 

adjustments to its burden estimates. The 

costs to the Department also were 

adjusted. Federal annualized costs are 

discussed after the burden on the 

reporting unions is considered. 

Based upon the analysis presented 

below, the Department estimates that 

the total first year burden to comply 

with Form T–1 will be 119,309 hours. 

The total first year compliance costs 

associated with this burden, including 

the cost for computer hardware if 

necessary, is estimated to be $3.3 

million. Therefore, this final rule is not 

a major economic rule. Both the burden 

hours and the compliance costs 

associated with Form T–1 decline in 

subsequent years. The Department 

estimates that the total burden averaged 

over the first three years to comply with 

the Form T–1 to be 75,379 hours per 

year. The total compliance costs 

associated with this burden averaged 

over the first three years are estimated 

to be $2.1 million. 

2. Overview of Form T–1 

This final Form T–1 rule preserves the 

key aspects of the NPRM, as revised in 

some minor respects by the 2003 rule, 

but the scope of the reporting 

requirement has been narrowed 

pursuant to the D.C. Circuit’s decision 

in AFL–CIO v. Chao, as discussed in the 

preamble. The rule reiterates the 

Department’s determination that no 

Form T–1 will be required if the trust 

files a report pursuant to 26 U.S.C. 527, 

or pursuant to the requirements of 

ERISA, or if the organization files 

publicly available reports with a Federal 

or state agency as a PAC. Additionally, 

a labor organization may substitute an 

audit that meets the criteria set forth in 

the Form T–1 instructions for the 

financial information otherwise 

reported on a Form T–1. 

Form T–1 consists of 14 questions 

that identify the union and trust; six 

yes/no questions covering issues such as 

whether any loss or shortage of funds 

was discovered during the reporting 

year and whether the trust had made 

any loans to officers or employees of the 

union at terms below market rates; four 

summary numbers for total assets, 

liabilities, receipts, and disbursements; 

a schedule for itemizing all receipts of 

$10,000 or more, individually or in the 

aggregate, from any entity or individual; 

a schedule for itemizing all 

disbursements of $10,000 or more, 

individually or in the aggregate, from 

any entity or individual; and a schedule 

for listing all officers of the trust and 

payments to them and all employees of 

the trust who received more than 

$10,000 from the trust. 

3. Recordkeeping and Reporting Burden 

Hour Estimates 

a. Methodology for the Burden 

Estimates. The figures used here by the 

Department are derived from the 

Department’s computations based on 

assumptions, rounded to the nearest 

hundredth, published in the 2003 rule. 

68 FR 58433. Both the Form LM–2 and 

the Form T–1 have the same filing 

dollar threshold, $250,000 or more in 

receipts. For today’s rule, baselines and 

other estimates (such as whether union, 

trust, or outside personnel will 

complete the form) for the Form T–1 

will be assumed to parallel those of the 

revised Form LM–2. Filers of Form T–

1 will be a subset of the Form LM–2 

filers, i.e., those Form LM–2 filers that 

participate in a section 3(l) trust will be 

required to file the Form T–1 when 

other criteria, as explained above, are 

met. In reaching its estimates, the 

Department considered both the onetime and recurring costs associated with 

the final rule. Separate estimates are 

included for the initial year of 

implementation as well as the second 

and third years. For filers, the 

Department included separate estimates, 

based on the relative size of unions as 

measured by the amount of their annual 

receipts. 

This final rule will affect the largest 

labor organizations, defined as those 

that have $250,000 or more in annual 

receipts. Such labor organizations that 

are interested in a section 3(l) trust must 

file a Form T–1 when: (1) The trust has 

annual receipts of $250,000 or more; (2) 

the labor organization contributes 

$10,000 or more to the trust; and (3) the 

labor organization, alone or in 

combination with other labor 

organizations, (A) appoints a majority of 

the members of the trust’s governing 

board, or (B) contributes more than 50% 

of the trust’s annual revenue. During 

fiscal year 2005, the Department 

received approximately 3,827 Form 

LM–2 reports. Therefore, the 

Department estimates that there are 

3,827 reporting labor organizations with 

receipts of $250,000 or more. The 

Department estimates that of these 3,827 

labor organizations, 1,664 will file Form 

T–1s. This cohort represents 18% of all 

labor organizations covered by the 

LMRDA. See Table 1. These figures 

differ from the Department’s 2003 

estimates where it was assumed that 

2,769 Form T–1s would be filed 

annually. 68 FR 58435. The differences 

between today’s estimates and those 

used in the 2003 rule reflect the 

narrower reach of today’s rule. 

Today’s estimates, like the 2003 rule, 

are based on a three-tier analysis of 

unions organized by receipt size. The 

Department first assumed that 10% of 

the 1,055 labor organizations with 

annual receipts of $250,000 to 

$499,999.99 (Tier 1) would file one 

Form T–1. Second, it was assumed that 

25% of the 2,723 labor organizations 

with annual receipts of $500,000 to 

$49.9 million (Tier 2) would file on 

average two Form T–1s. Third, it was 

assumed that 100% of the 49 labor 

organizations with annual receipts of 

$50 million or more (Tier 3) would file 

an average of four Form T–1 reports 

each. The implementation of a tier 

system is based on the underlying 

assumption that the size of a union, as 

measured by the amount of its annual 

receipts, will affect its recordkeeping 

and reporting burden for Form T–1. 

Larger unions have more trusts for 

which to account: the three tiers are 

constructed to differentiate these 

relative burdens among those unions 

with $250,000 or more in receipts (68 

FR 58433). 

TABLE 1.—TIER SYSTEM BASED ON FY 2005 FIGURES

Total Labor Organizations with 250,000 or more in receipts: 3,827. 

Tier 1 ($250,000¥499,999 receipts): 1,055 × 10% (# filers) × 1 (# reports) = 106. 

Tier 2 ($500,000¥49.9 mil receipts): 2,723 × 25% (# filers) × 2 (# reports) = 1,362. 


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TABLE 1.—TIER SYSTEM BASED ON FY 2005 FIGURES—Continued 

Tier 3 ($50 mil and higher receipts): 49 × 100% = 49 (# filers) × 4 (# reports) = 196. 

Form T–1 Filers: 1,664. 

The Department’s cost estimates 

include costs for both labor and 

equipment that will be incurred by 

filers. The labor costs reflect the 

Department’s assumption that unions 

and trusts will rely upon the services of 

some or all of the following positions 

(union president, union secretarytreasurer, accountant, bookkeeper, 

computer programmer, lawyer, 

consultant) and the compensation costs 

for these positions, as measured by wage 

rates and employer costs published by 

the Bureau of Labor Statistics or derived 

from data in the Department’s Electronic 

Labor Organization Reporting System 

database (‘‘e.LORS’’), which stores and 

automatically culls certain information, 

such as union officer and employee 

salaries, from annual reports submitted 

by labor organizations. The Department 

also made assumptions relating to the 

time that particular tasks or activities 

would take. The activities generally 

involve only one of the three distinct 

‘‘operational’’ phases of the rule: First, 

tasks associated with modifying 

bookkeeping and accounting practices, 

including the modification or purchase 

of software, to capture data needed to 

prepare the required reports; second, 

tasks associated with recordkeeping; 

and third, tasks associated with 

completing the report and all 

appropriate levels of review and 

signature. Where an estimate depends 

upon the number of unions subject to 

the LMRDA or included in one of the 

tier groups, the Department has relied 

upon data in the e.LORS system (for the 

years stated for each example in the text 

or tables). 

The relative burden associated with 

the final rule will correspond to the 

following predictable stages: Review of 

the rule, instructions, and forms; 

adjustments to or acquisition of 

accounting software and computer 

hardware; changing accounting 

structures and developing, testing, 

reviewing, and documenting accounting 

software queries as well as designing 

query reports; training officers and 

employees involved in bookkeeping and 

accounting functions; the actual 

recordkeeping of data; and additional 

review by trust officials and the 

reporting union’s president and 

secretary-treasurer. As those unions that 

will be required to file Form T–1 

already are required to file Form LM–2, 

which requires the use of digital 

signatures, T–1 filers will not incur an 

additional cost or burden associated 

with the need to affix a digital signature 

to the Form T–1. 

Burden can be categorized as 

recurring or non-recurring, with the 

latter primarily associated with the 

initial implementation stages. 

Recordkeeping burden, as distinct from 

reporting burden, will predominate 

during the first months of 

implementation. Burden can be 

reasonably estimated to vary over time 

with the greatest burden in the initial 

year, decreasing in later years as filers 

gain experience. Estimates for each of 

the first three years and a three-year 

average will provide useful information 

to assess the burden. Burden can be 

usefully reported as an overall total for 

all filers in terms of hours and cost. The 

estimated burden associated with the 

current LM forms is the appropriate 

baseline for estimating the burden and 

cost associated with the final rule 

because only a subset of those unions 

which file Form LM–2 will be required 

to file Form T–1. As the Form T–1 will 

be filed only by unions with $250,000 

or more in receipts, which is the dollar 

threshold for the revised Form LM–2, it 

is presumed that many of the same 

union and/or outside personnel will be 

performing the recordkeeping and 

responding duties. Therefore, these 

estimates are used as the Form T–1 

baseline. 

For each of the three tiers, the 

Department estimated burden hours for 

the nonrecurring (first year) 

recordkeeping and reporting 

requirements, the recurring 

recordkeeping and reporting burden 

hours, and a three-year annual average 

for the nonrecurring and recurring 

burden hours similar to the way it has 

previously estimated the burden hours 

when updating financial disclosure 

forms required by the LMRDA. As 

shown on Table 2, the Department 

estimates the burden required for 

preparing to complete the Form T–1 for 

all three tiers to be 2.4 hours to provide 

the Form T–1 requirements to the trust, 

4.3 hours for reviewing the form and 

instructions, and 8.0 non-recurring (first 

year) hours for installing, testing, and 

reviewing acquired software/hardware 

and/or implementing recordkeeping 

and/or reporting procedures. The time 

required to read and review the form 

and instructions is estimated to decline 

to 2.0 hours the second year and 1.0 

hour the third year as unions and trusts 

become more familiar with the form. 

The Department estimates the average 

reporting burden required to complete 

pages one and two of the Form T–1 for 

each of the three tiers to be 6.1 hours 

and the average recordkeeping burden 

associated with the items on pages one 

and two to be 1.6 hours. The 

Department also estimates that trusts 

will spend 2.0 hours reviewing the form 

once it is completed. These estimates 

are proportionally based on the 

recordkeeping and reporting burden 

estimate for the first two pages of the 

current Form LM–4, which are very 

similar to the first two pages of the Form 

T–1. The first two pages of Form LM–

4 have 21 items (8 questions that 

identify the union, four yes/no 

questions, seven summary numbers for: 

maximum amount of bonding, number 

of members, total assets, liabilities, 

receipts, and disbursements, total 

disbursements to officers, and a space 

for additional information). The first 

two pages of Form T–1 have 25 items 

(14 questions that identify the union 

and trust, six yes/no questions, four 

summary numbers for total assets, 

liabilities, receipts, and disbursements, 

and a space for additional information). 

For the receipts and disbursements 

schedules, the Department estimates 

that on average Form T–1 respondents 

will take 9.8 hours (of nonrecurring 

burden) to develop, test, review, and 

document accounting software queries; 

design query reports; prepare a 

download methodology; and train 

personnel for each of the schedules. 

Further, the Department also estimates 

that on average Form T–1 respondents 

will take 1.2 (recurring) hours to prepare 

and transmit the receipts schedule and 

1.4 hours to prepare and transmit the 

disbursements schedule. The 

Department also estimates that on 

average Form T–1 respondents will take 

8.3 hours (recurring) of recordkeeping 

burden for each schedule to maintain 

the additional information required by 

the final rule. 

For the Form T–1 disbursements to 

officers and employees of the trust 

schedule, the Department estimates that 

it will take respondents an average 2.8 

hours (of nonrecurring burden) to 

develop, test, review, and document 

accounting software queries; design 

query reports; prepare a download 

methodology; and train personnel. 

Further, the Department estimates it 


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will take on average 0.8 hours to prepare 

and transmit the schedule. 

The Department also estimates that it 

will take 2.0 hours for the trust to 

review the Form T–1 and 1.0 hours for 

this information to be sent to the union 

filer. In addition, the Department 

estimates that the union president and 

secretary-treasurer will take 4.0 hours to 

review and sign the form. The time for 

the president and secretary-treasurer to 

review and sign the form declines to 2.0 

hours the second year and 1.0 hour the 

third year as they become more familiar 

with the form. 

TABLE 2.—SUMMARY OF AVERAGE FIRST YEAR BURDEN FOR FORM T–1 

Reporting or recordkeeping requirement Nonrecurring 

burden hours 

Reporting 

burden hours 

Recordkeeping 

burden hours 

Information on Form T–1 Provided to Trust ................................................................................ 0.0 2.4 0.0 

Review Form T–1 and Instructions ............................................................................................. 0.0 4.3 0.0 

Install, Test, and Review Software .............................................................................................. 8.0 0.0 0.0 

Pages 1 and 2 ............................................................................................................................. 0.0 6.1 1.6 

Individually Identified Receipts .................................................................................................... 9.8 1.2 8.3 

Individually Identified Disbursements .......................................................................................... 9.8 1.4 8.3 

Disbursements to Officers and Employees ................................................................................. 2.8 0.8 0.0 

Review by Trust ........................................................................................................................... 0.0 2.0 0.0 

Form/Information Sent to Union .................................................................................................. 0.0 1.0 0.0 

President Review and Sign Off ................................................................................................... 0.0 2.0 0.0 

Treasurer Review and Sign Off ................................................................................................... 0.0 2.0 0.0 

Total First Year Burden for Form T–1 ......................................................................................... 30.4 23.2 18.1 

Note: Some numbers may not add due to rounding. 

Source: U.S. Department of Labor, Employment Standards Administration, Office of Labor-Management Standards, Paperwork Reduction Act 

Analysis. 

The Department’s cost estimates are 

based on wage-rate data obtained from 

BLS for personnel employed in service 

industries (i.e., accountant, bookkeeper, 

etc.) and adjusted to be total 

compensation estimates based on the 

BLS Employer Cost data from the 2004 

NCS. The estimates used for salaries of 

labor organization officers and 

employees are obtained from the annual 

financial reports filed with OLMS and 

are also adjusted to be total 

compensation estimates. 

The Department estimates that, on 

average, the completion by a union of 

Form T–1 will involve an independent 

and/or union accountant, a union 

bookkeeper or clerk, the union’s 

president, and the union’s secretary 

treasurer. Based on the 2004 NCS, an 

independent accountant/auditor earns 

on average $24.56 per hour (accountants 

employed by unions are presumed to 

make the same average salary). Based on 

reviewed annual labor organization 

reports for fiscal year 2005, union 

bookkeepers/clerks earn on average 

$14.00 per hour, presidents $37.82 per 

hour, and secretary-treasurers $34.00 

per hour. Given the nexus between a 

trust and a union for purposes of Form 

T–1, the Department believes that the 

salary rates of union officers and 

employees are applicable to 

corresponding trust positions. These 

salaries combine for an average of 

$27.60 per hour. 

The Department estimates the average 

reporting and recordkeeping burden for 

Form T–1 to be 71.7 hours per 

respondent in the first year (including 

non-recurring implementation costs), 

33.9 hours per respondent in the second 

year, and 30.4 hours per respondent in 

the third year. The Department 

estimates the total annual burden hours 

for respondents for Form T–1 to be 

119,309 hours in the first year, 56,409 

hours in the second year, and 50,585 

hours in the third year (see Table 3). 

Under today’s rule only the estimated 

number of filers, not the form itself, has 

changed from the 2003 rule; therefore, 

the current burden hour estimates, per 

respondent, are identical to the 2003 

estimates. See 68 FR 58446. 

The Department estimates the average 

annual cost for the Form T–1 to be 

$1,979 per respondent in the first year 

(including non-recurring 

implementation costs) (71.7 × 27.60 = 

1,978.92); $936 per respondent in the 

second year (33.9 × 27.60 = 935.64); and 

$839 per respondent in the third year 

(30.4 × 27.60 = 839). These per 

respondent figures are also close to the 

2003 estimates (see 68 FR 58446). 

The Department also estimates the 

total annual cost to respondents for 

Form T–1 to be $3.3 million in the first 

year, $1.6 million in the second year, 

and $1.4 million in the third year (see 

Table 4). Because the scope of the form 

has been narrowed from the 2003 

approach, these estimates are less than 

the overall costs estimated in 2003 

($5.5, $2.6, and $2.3 million). See 68 FR 

58466. 

TABLE 3.—REPORTING AND RECORDKEEPING BURDEN HOURS AND COSTS FOR FORM T–1 

Form Number of 

responses 

Reporting 

hours per 

respodent 

Total reporting 

hours 

Recordkeeping 

hours per 

respondent 

Total 

recordkeeping 

hours 

Total burden 

hour per 

respondent 

Total burden 

hours 

Form T–1/First Year ..... 1,664 23.2 38,605 48.5 80,704 71.7 119,309 

Second Year ................ 1,664 15.8 26,291 18.1 30,118 33.9 56,409 

Third Year .................... 1,664 12.3 20,467 18.1 30,118 30.4 50,585 

Three-Year Average .... 1,664 17.1 28,454 28.2 46,925 45.3 75,379 

Note: Some numbers may not add due to rounding. 

Source: U.S. Department of Labor, Employment Standards Administration, Office of Labor-Management Standards. 


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TABLE 4.—RESPONDENT COSTS FOR FORM T–1 

Form/year Number of 

respondents 

Average cost 

per 

respondent 

Total 

Form T–1/First Year .................................................................................................................... 1,664 $1,979 $3,293,056 

Second Year ................................................................................................................................ 1,664 936 1,557,504 

Third Year .................................................................................................................................... 1,664 839 1,396,096 

Three-Year Average .................................................................................................................... 1,664 1,249 2,078,336 

Note: Some numbers may not add due to rounding. 

Source: U.S. Department of Labor, Employment Standards Administration, Office of Labor-Management Standards. 

Appropriate information technology 

is used to reduce burden and improve 

efficiency and responsiveness. The 

current forms can be downloaded from 

the OLMS web site. OLMS has also 

implemented a system to require Form 

LM–2 and Form T–1 filers and permit 

Form LM–3 and Form LM–4 filers to 

submit forms electronically with digital 

signatures. Unions are currently 

required to pay a minimal fee to obtain 

electronic signature capability for the 

two officers who sign the form. The OLMS Internet Disclosure site is 

available for public use. The site 

contains a copy of each labor 

organization’s annual financial report 

for reporting year 2000 and thereafter as 

well as an indexed computer database 

on the information in each report that is 

searchable through the Internet. Form 

T–1 filings will be available on the Web 

site. 

OLMS includes e.LORS information 

in its outreach program, including 

compliance assistance information on 

the OLMS website, individual guidance 

provided through responses to email, 

written, or telephone inquiries, and 

formal group sessions conducted for 

union officials regarding compliance. Information about this system can be 

obtained on the OLMS Web site at 

http://www.olms.dol.gov. Digital 

signatures ensure the authenticity of the 

reports. 

Federal Costs Associated With Final 

Rule 

The estimated annualized Federal 

cost of the Form T–1 is $173,000. This 

represents estimated operational 

expenses such as equipment, overhead, 

and printing as well as salaries and 

benefits for the OLMS staff in the 

National Office and field offices that are 

involved with reporting and disclosure 

activities. These estimates include time 

devoted to: (a) Receipt and processing of 

reports; (b) disclosing reports to the 

public; (c) obtaining delinquent reports; 

(d) obtaining amended reports if reports 

are determined to be deficient; (e) 

auditing reports; and (f) providing 

compliance assistance training on 

recordkeeping and reporting 

requirements. 

Previously, the Department estimated 

that the combined Federal cost for 

implementing the revised electronic 

Form LM–2 and the T–1 was $79.9 

million. Much of this initially proposed 

cost represented implementation of 

technology needed for electronic filing. 

The implementation of the electronic 

Form LM–2 has absorbed this cost, 

leaving continuing administration the 

remaining technology cost. The current 

figure represents an analysis of 

Departmental staff and contractors used 

to administer solely the Form T–1. 

Further, as there are fewer anticipated 

reports, the Federal cost for processing 

Form T–1 will likewise be reduced. 

G. Executive Order 13045 (Protection of 

Children From Environmental Health 

Risks and Safety Risks) 

In accordance with Executive Order 

13045, the Department has evaluated 

the environmental safety and health 

effects of the final rule on children. The 

Department has determined that the 

final rule will have no effect on 

children. 

H. Executive Order 13175 (Consultation 

and Coordination With Indian Tribal 

Governments) 

The Department has reviewed this 

final rule in accordance with Executive 

Order 13175, and has determined that it 

does not have ‘‘tribal implications.’’ The 

final rule does not ‘‘have substantial 

direct effects on one or more Indian 

tribes, on the relationship between the 

Federal government and Indian tribes, 

or on the distribution of power and 

responsibilities between the Federal 

government and Indian tribes.’’

I. Executive Order 12630 (Governmental 

Actions and Interference With 

Constitutionally Protected Property 

Rights) 

This final rule is not subject to 

Executive Order 12630, Governmental 

Actions and Interference with 

Constitutionally Protected Property 

Rights, because it does not involve 

implementation of a policy with takings 

implications. 

J. Executive Order 12988 (Civil Justice 

Reform) 

This final rule has been drafted and 

reviewed in accordance with Executive 

Order 12988, Civil Justice Reform, and 

will not unduly burden the Federal 

court system. The final rule has been 

written so as to minimize litigation and 

provide a clear legal standard for 

affected conduct, and has been reviewed 

carefully to eliminate drafting errors and 

ambiguities. 

K. Environmental Impact Assessment 

The Department has reviewed the 

final rule in accordance with the 

requirements of the National 

Environmental Policy Act (NEPA) of 

1969 (42 U.S.C. 4321 et seq.), the 

regulations of the Council on 

Environmental Quality (40 U.S.C. part 

1500), and the Department’s NEPA 

procedures (29 CFR part 11). The final 

rule will not have a significant impact 

on the quality of the human 

environment, and, thus, the Department 

has not conducted an environmental 

assessment or an environmental impact 

statement. 

L. Executive Order 13211 (Actions 

Concerning Regulations That 

Significantly Affect Energy Supply, 

Distribution, or Use) 

This final rule is not subject to 

Executive Order 13211, because it will 

not have a significant adverse effect on 

the supply, distribution, or use of 

energy. 

List of Subjects in 29 CFR Part 403 

Labor unions, Reporting and 

recordkeeping requirements. 

Text of Final Rule 

■ Accordingly, the Department amends 

part 403 of 29 CFR Chapter IV as set 

forth below: 

PART 403—LABOR ORGANIZATION 

ANNUAL FINANCIAL REPORTS 

■ 1. The authority citation for part 403 

continues to read as follows: 

Authority: Secs. 202, 207, 208, 73 Stat. 

525, 529 (29 U.S.C. 432, 437, 438); 


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Secretary’s Order No. 4–2001, 66 FR 29656, 

May 31, 2001. 

■ 2. In § 403.2, paragraph (d) is revised 

to read as follows: 

§ 403.2 Annual financial report. 

* * * * * 

(d)(1) Every labor organization with 

annual receipts of $250,000 or more 

shall file a report on Form T–1 for each 

trust if the following conditions exist: 

(i) The trust is of the type defined by 

section 3(l) of the LMRDA, i.e., the trust was 

created or established by the labor 

organization or the labor organization 

appoints or selects a member to the trust’s 

governing board; and the trust has as a 

primary purpose to provide benefits to the 

members of the labor organization or their 

beneficiaries (29 U.S.C. 402(l)); and 

(ii) The labor organization’s financial 

contribution to the trust, or a contribution 

made on its behalf or as a result of a 

negotiated agreement to which it is a party, 

was $10,000 or more during the reporting 

period and the trust had $250,000 or more in 

annual receipts; and either 

(A) The labor organization, alone or with 

other labor organizations, appoints or selects 

a majority of the members of the trust’s 

governing board; or 

(B) The labor organization’s contributions 

to the trust, alone or in combination with 

other labor organizations, constitute greater 

than 50% of the revenue of the trust during 

the trust’s fiscal year; and none of the 

exceptions discussed in paragraph (d)(2) of 

this section apply. 

(2) A separate report shall be filed on 

Form T–1 for each such trust within 90 

days after the end of the labor 

organization’s fiscal year in the detail 

required by the instructions 

accompanying the form and constituting 

a part thereof, and shall be signed by the 

president and treasurer, or 

corresponding principal officers, of the 

labor organization. No Form T–1 need 

be filed for a trust if an annual financial 

report providing the same information 

and a similar level of detail is filed with 

another agency pursuant to federal or 

state law, as specified in the 

instructions accompanying Form T–1. 

In addition, an audit that meets the 

criteria specified in the instructions for 

Form T–1 may be substituted for all but 

page 1 of the Form T–1. If, on the date 

for filing the annual financial report of 

such trust, such labor organization is in 

trusteeship, the labor organization that 

has assumed trusteeship over such 

subordinate labor organization shall file 

such report as provided in § 408.5 of 

this chapter. 

■ 3. Amend § 403.5 by revising 

paragraph (d) to read as follows: 

§ 403.5. Terminal financial report. 

* * * * * 

(d) If a labor organization filed or was 

required to file a report on a trust 

pursuant to § 403.2(d) and that trust 

loses its identity during its subsequent 

fiscal year through merger, 

consolidation, or otherwise, the labor 

organization shall, within 30 days after 

such loss, file a terminal report on Form 

T–1, with the Office of LaborManagement Standards, signed by the 

president and treasurer or 

corresponding principal officers of the 

labor organization. For purposes of the 

report required by this paragraph, the 

period covered thereby shall be the 

portion of the trust’s fiscal year ending 

on the effective date of the loss of its 

reporting identity. 

■ 4. In § 403.8, redesignate paragraph (c) 

as paragraph (d) and add a new 

paragraph (c) to read as follows: 

§ 403.8 Dissemination and verification of 

reports. 

* * * * * 

(c)(1) If a labor organization is 

required to file a report under this part 

using the Form T–1 and indicates that 

it has failed or refused to disclose 

information required by the Form 

concerning any disbursement or receipt 

to an individual or entity in the amount 

of $10,000 or more, or any two or more 

disbursements or receipts that, in the 

aggregate, amount to $10,000 or more, 

because disclosure of such information 

may be adverse to the organization’s 

legitimate interests, then the failure or 

refusal to disclose the information shall 

be deemed ‘‘just cause’’ for purposes of 

paragraph (a) of this section. 

(2) Disclosure may be adverse to a 

labor organization’s legitimate interests 

under this paragraph if disclosure 

would reveal confidential information 

concerning the organization’s organizing 

or negotiating strategy or individuals 

paid by the trust to work in a non-union 

facility in order to assist the labor 

organization in organizing employees, 

provided that such individuals are not 

employees of the trust who receive more 

than $10,000 in the aggregate in the 

reporting year from the trust. 

(3) This provision does not apply to 

disclosure that is otherwise prohibited 

by law or that would endanger the 

health or safety of an individual. 

* * * * * 

Appendix [Form T–1 and Instructions] 

Note: This appendix, which will not 

appear in the Code of Federal Regulations, 

contains the Form T–1 and the instructions 

for this form. 

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Signed at Washington, DC, this 21st day of 

September, 2006. 

Victoria A. Lipnic, 

Assistant Secretary for Employment 

Standards. 

Signed at Washington, DC, this 22nd day 

of September, 2006. 

Don Todd, 

Deputy Assistant Secretary for LaborManagement Programs. 

[FR Doc. 06–8339 Filed 9–28–06; 8:45 am] 

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